CUOMO ANNOUNCES GUILTY PLEA OF WNY TRAVEL OPERATOR WHO SOLD PHONY TRAVEL VOUCHERS

Destination Management Group of Buffalo sold trips to organizations to use as fund-raising, marketing or incentive tools, and then never booked the trips;

Victims include Hospice and Palliative Care Group of Niagara County, Meals on Wheels Foundation of Western New York and the Beechwood/Blocher Foundation

BUFFALO, N.Y. -- Last week, Attorney General Andrew M. Cuomo announced that a Western New York travel company owner pleaded guilty to selling cruise packages to non-profits and other organizations without ever booking their trips.

Joseph Ehrenreich of Pendleton, owner of Destination Management Group of Buffalo, pleaded guilty to Scheme to Defraud in the Second Degree (class A misdemeanor) before Niagara County Judge Matthew Murphy. As part of the plea, Ehrenreich paid $130,000 in restitution to those he defrauded and will be sentenced to one year in jail on April 19th.

Ehrenreich's scam defrauded volunteers, employees, and supporters of area non-profits, including the Hospice and Palliative Care Group of Niagara County, the Meals on Wheels Foundation of Western New York and the Beechwood/Blocher Foundation.

"This travel agent told not-for-profits that he would help them raise money, then lied, and ended up costing the organizations money," said Attorney General Cuomo. "His deceptive scheme of selling fake vouchers caused these worthwhile organizations to have to pony up additional cash in order to make ends meet. We have put a stop to the ploy and he must now pay for his actions."

According to court documents, Ehrenreich operated Destination Management Group (DMG) from his home in Niagara County, offering businesses and other organizations a program where they could pay to have unlimited access to cruise vouchers. The client organizations - many of them non-profits - would then distribute the vouchers as fundraising tools, marketing incentives or employee rewards.

Ehrenreich claimed he would handle all the travel arrangements for the vouchers, citing his purported relationships with major cruise lines and his memberships with the International Airlines Travel Agents Network (IATAN) and the Cruise Lines International Association (CLIA). In fact, he was not affiliated with either association. Popular cruise lines, including Royal Caribbean, Norwegian, Holland and Carnival, all denied having any relationship with DMG or Ehrenreich and indicated that the invoice confirmation numbers he used were fictitious. IATAN also confirmed that the organization had never accredited either Ehrenreich or DMG. Ehrenreich also used the cruise lines' logos on his Web site and vouchers without their permission.

Ehrenreich would also convince victims to upgrade their vouchers, costing them thousands of dollars more. He would then require victims to make immediate payment by check or cash to "hold" the reservation - he would not accept credit card payments. After receiving payment, Ehrenreich would issue an invoice with phony cruise line confirmation and IATAN accreditation codes.

However, victims who called the cruise lines to confirm their reservations or check the status of the cruises then found out that Ehrenreich never booked any of the cruises and that he had kept the payments. Many victims only learned that their cruises were not booked when Ehrenreich filed for bankruptcy. In some cases, when consumers became suspicious, Ehrenreich attempted to conceal his theft by obtaining their credit card information and then using it to purchase trips for which they had already paid.

Among those Ehrenreich defrauded:

• A volunteer from the Hospice and Palliative Care Group of Niagara County received a complimentary cruise voucher at the group's holiday party, spent thousands of dollars to upgrade the trip and later found out no cruise was booked when she contacted the cruise line. Upon complaining to Ehrenreich about the discrepancy, he allegedly reassured her that the cruise line was mistaken and there was indeed a booking. She later learned that Ehrenreich obtained her credit card information and used it to pay for a cruise that was supposed to have been already paid for.
• Another victim received a DMG cruise voucher at the Hospice and Palliative Care Group of Niagara County's holiday party. The consumer, who wanted to bring her granddaughters on the cruise, paid almost $4,000 for the cruise, travel insurance and airfare. After she repeatedly tried to reach Ehrenreich, he finally assured her that her cruise had indeed been booked. However, when she contacted Carnival directly, she learned that the reservation was never made.
• A magazine, After 50 News, donated a voucher to a benefit being held for Police Officer Patricia Parete, who was seriously injured in the line of duty and to the Beechwood Continuing Care fundraiser. A consumer won the voucher and upgraded the cruise voucher for over $3,000. Months later, the consumer contacted the cruise line and was informed that a reservation was never made.
• Another consumer attended the Twelfth Annual Auction and Food Extravaganza Fundraiser for the Beechwood/Blocher Foundation and submitted a winning bid of $1,200 for a cruise voucher donated by After 50 News. When the consumer attempted to register his certificate with Ehrenreich, he learned that he had filed for bankruptcy. The Beechwood/Blocher Foundation reimbursed the consumer for the amount of his bid.
• Another consumer received a cruise voucher from After 50 News, which he planned to use to celebrate his daughter's completion of cancer treatments. Ehrenreich claimed to book a five-day cruise and demanded immediate payment. The consumer's daughter delivered a check for $1,375. After several unsuccessful attempts to reach Ehrenreich after making the payment, the consumer contacted the cruise line and found out that the cruise was never booked and that the confirmation and IATAN numbers listed on the invoice were fraudulent.
• Two consumers purchased a cruise package for $1,400 at a fundraiser for the Meals on Wheels Foundation of Western New York and upgraded their cruise for over $5,000, which included the cruise, airfare and trip insurance. After paying Ehrenreich, the consumers contacted Celebrity Cruise Line in early 2008 and learned that their cruise was never reserved. After the Hospice and Palliative Care Group of Niagara County learned that the cruise vouchers it provided to volunteers, employees and donors were fraudulent, the organization took it upon itself to reimburse those individuals in the amount of $18,000.

The case is being handled by Assistant Attorney General Letizia Tagliafierro under the supervision of Assistant Attorney General-In-Charge of the Buffalo Regional Office Russell T. Ippolito and Deputy Bureau Chief Richard Ernst of the Criminal Prosecutions Bureau. The investigation was handled by OAG Investigator Shawn McCormick.

Posted by Lucas A. Ferrara, Esq. at 1:00 PM | Permalink | TrackBacks (0) | Comments (0)

When Paul Arnold purchased a home from Gale Wilkins, the contract of sale provided that the sewage disposal system was in good working order. And an inspection, conducted prior to the closing, revealed no problems.

Several months later, after a sewage back-up occurred, Arnold hired an engineer who was of the opinion the existing septic system was inadequate.

After the Essex County Supreme Court dismissed Arnold's breach of contract and fraud claims, he appealed to the Appellate Division, Third Department.

While Arnold argued that he was promised a working sewage system, nothing in the parties' contract of sale indicated that the representation survived closing or was enforceable after the sale.

And while he also argued that the problem was "latent" in nature, since it was "discoverable" before the closing, the AD3 didn't think that particular exception applied.

What a stinker!

To view a copy of the Appellate Division's decision, please use: Arnold v. Wilkins 

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

  ATTORNEY GENERAL CUOMO FILES FRAUD CHARGES AGAINST BANK OF AMERICA, FORMER CEO KENNETH LEWIS, AND FORMER CFO JOSEPH PRICE

Suit Alleges Bank of America's Top Management Hid Skyrocketing Losses at Merrill Lynch

Bank of America Management Manipulated Federal Government into Granting Massive Taxpayer Bailout

NEW YORK, NY -- Attorney General Andrew M. Cuomo, joined by Special Inspector General for the Troubled Asset Relief Program Neil Barofsky, today announced a lawsuit against Bank of America, its former CEO Kenneth D. Lewis, and its former CFO Joseph L. Price for duping shareholders and the federal government in order to complete a merger with Merrill Lynch. According to the lawsuit, Bank of America's management intentionally failed to disclose massive losses at Merrill so that shareholders would vote to approve the merger. Once the deal was approved, Bank of America's management manipulated the federal government into saving the deal with billions in taxpayer funds by falsely claiming that they would back out of the deal without bailout funds.

"This merger is a classic example of how the actions of our nation's largest financial institutions led to the near-collapse of our financial system," said Attorney General Cuomo. "Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large. This was an arrogant scheme hatched by the bank's top executives who believed they could play by their own set of rules. In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America's misdeeds."

"The events surrounding the Bank of America/Merrill Lynch merger and the United States Government's investment in Bank of America through the Troubled Asset Relief Program are an important part of the history of the financial crisis," said Special Inspector General Neil Barofsky. "Attorney General Cuomo and his staff, working hand in hand with the law enforcement agents of SIGTARP, quickly identified the important shareholder and taxpayer interests at stake in the disclosures surrounding the merger and meticulously pieced together the evidence that supports the historic charges filed today. The close partnership between the New York Attorney General's Office and SIGTARP in this case stands as a tremendous example of how well the public's interests can be served through effective State and Federal coordination, and should send a powerful message that we will work tirelessly to hold accountable those who have engaged in misconduct relating to the response to this National crisis."

Bank of America announced its plan to buy Merrill Lynch on September 15, 2008 and a shareholder vote to approve the transaction was scheduled for December 5, 2008. However, by the day of the shareholder vote, Merrill had incurred disastrous actual losses of more than $16 billion. Bank of America's top management, including CEO Lewis and CFO Price, knew about these massive losses and that additional losses were forthcoming. Despite the fact that this information would be important to shareholders, the bank's management chose not to disclose this information so that shareholders would approve the merger.

After shareholders approved the deal, Lewis then misled federal regulators by telling them that the bank could not complete the merger without an extraordinary taxpayer bailout due to accelerated losses from Merrill. However, between the time that the shareholders had approved the deal and the time that Lewis sought a taxpayer bailout, Merrill's actual losses had only increased by another $1.4 billion. The bank also threatened federal officials that they would terminate the merger agreement based on a material adverse change in Merrill's financial condition, even though the bank knew that such an attempt would likely be futile.

As a result of their efforts, Bank of America received more than $20 billion in taxpayer aid. The bank's management cannot explain why they did not disclose Merrill's massive losses to shareholders even though the merger with Merrill would have threatened the bank's very existence if there had been no taxpayer bailout.

Furthermore, the lawsuit alleges the following:

• Shortly before the shareholder vote, Price ignored a warning from the bank's Corporate Treasurer, Jeffrey Brown, who told Price that, "I didn't want to be talking [about Merrill's losses] through a glass wall over a telephone."
• The bank's management failed to tell shareholders that it was allowing Merrill to pay $3.57 billion in bonuses. The amount, criteria, and timing of the bonus payments were omitted from the proxy. The bonuses were distributed in a manner that was completely inconsistent with Merrill's prior practice, and in the worst year in Merrill's history.
• The bank's management did not tell the bank's lawyers about the full extent of Merrill's losses before the shareholder vote. For example, the bank's former General Counsel, Timothy Mayopoulos, was intentionally mislead about the size and nature of Merrill's losses. After the shareholder vote, when Mayopoulos learned of the actual losses, he attempted to confront Price but was summarily terminated.
• In the course of the Attorney General's investigation, Lewis and other executives misled investigators about their conduct during and after the shareholder vote.

In the process of acquiring Merrill Lynch, Bank of America's management intentionally misled its shareholders, its Board of Directors, its lawyers, and United States taxpayers. The lawsuit filed today in New York State Supreme Court seeks monetary relief and injunctions from Bank of America, Lewis, and Price.

The Attorney General thanked Special Inspector General for the Troubled Asset Relief Program Neil Barofsky and his staff for their partnership and hard work throughout the investigation. The Attorney General also thanked the Securities and Exchange Commission ("SEC") and noted that today the SEC is announcing a proposed corporate settlement with Bank of America (See SEC Lit. Release #21407). Cuomo stated, "I support the SEC's proposed settlement of its pending actions against Bank of America. The corporate governance provisions of that settlement are important reforms for Bank of America and ensure that safeguards against future violation of the law will be implemented immediately and will not have to await the conclusion of the case we are filing today."

The investigation was conducted by Assistant Attorneys General Vicki Andreadis, Thomas Teige Carroll, Pamela Lynam Mahon, Christopher Mulvihill, and Ethan Zlotchew, under the supervision of Special Deputy Attorney General for Investor Protection David A. Markowitz.

A copy of the lawsuit can be found at: www.ag.ny.gov/media_center/2010/feb/BoA_Complaint.pdf

Posted by Lucas A. Ferrara, Esq. at 6:30 PM | Permalink | TrackBacks (0) | Comments (0)

GOVERNOR PATERSON ANNOUNCES AGENCY CUTS, FACILITY CLOSURES AND OTHER MEASURES TO STREAMLINE GOVERNMENT, SAVE TAXPAYER DOLLARS

Important Step towards Changing and Restructuring the Way New York Does Business; Making State Government Smarter, Smaller, and Less Costly

Efforts of Office of Taxpayer Accountability Will Make Government More Efficient & Eliminate Waste

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Yesterday, Governor David A. Paterson announced a series of State agency and public authority mergers and consolidations, as well as actions identified by his Office of Taxpayer Accountability, which he is advancing in his 2010-11 Executive Budget to save taxpayer dollars. These efforts will help move forward Governor Paterson's goal of a restructured and more streamlined State government at a time when difficult cuts are required across every area of State spending to address an historic fiscal crisis.

"In a time of plummeting revenues and limited resources, it is critical to ensure that important State services are delivered in the most cost-effective and efficient manner possible," Governor Paterson said. "Given the substantial financial difficulties we are facing, my proposed budget includes significant additional cuts. But the improved efficiencies we are announcing today are another important step forward in our efforts to lower costs and root out waste on behalf of New York's taxpayers."

Additional Across-the-board Agency Cuts

Since taking office, Governor Paterson has implemented $1.5 billion in across-the-board, recurring cuts to State agencies ($1.0 billion in 2008-09 and $500 million in 2009-10). The 2010-11 Executive Budget includes an additional $500 million reduction to State agencies, bringing the total amount of recurring across-the-board agency cuts that the Governor has instituted to $2.0 billion.

Prison Closures

The prison population is projected to decline by 1,100 inmates in the current fiscal year and by another 1,000 inmates in the 2010-11 fiscal year. As a result, the Department of Correctional Services will continue to consolidate facilities and eliminate excess capacity. Two prisons will close in January 2011: Lyon Mountain minimum security (Clinton County) and Butler minimum security (Wayne County). Another two prisons will close in April 2011: the Moriah Shock facility (Essex County) and Ogdensburg medium security facility (St. Lawrence County). The planned closures will be undertaken in compliance with the current statutory provisions requiring one-year notification. The consolidation of various dormitories will also be factored into the overall plan, providing flexibility to adjust to unexpected changes in the size and movement of the inmate population. Once the closures are completed, the DOCS workforce will have been reduced by 637 staff, including 17 managerial staff. These actions will save $7 million in 2010-11 and $52 million in 2011-12.

Rightsize Residential Juvenile Justice System

By consolidating and reducing capacity in line with population trends, the State will lower costs and improve the efficiency of the Office of Children and Family Services (OCFS) youth facility system. The Annsville and Taberg residential facilities would be consolidated. Additionally, two other facilities would be downsized to reduce excess capacity, including the Tryon Boys facility in Johnston, Fulton County (eliminate the limited-secure program for boys) and the non-secure residential center for girls in Lansing, Tompkins County. These actions would take place in January 2011 in accordance with one-year notification requirements, reduce facility-wide vacancy rates from 30 percent to 19 percent, and result in reduced staffing needs of 251 positions. OCFS would continue to operate 23 residential facilities (1,209 beds) and five day placement centers with sufficient capacity to accommodate any upturn in placements by the Family or Criminal Courts. Overall, this proposal w! ould produce savings of $3 million in 2010-11 and $15 million in 2011-12.

Workforce Actions

At the close of the 2009-10 fiscal year, the portion of the State workforce that is subject to gubernatorial management is projected to total 132,525. This represents a decline of 5,150 since Governor Paterson took office in March 2008. After implementation of Executive Budget recommendations, the portion of the State workforce that is subject to gubernatorial management would total 131,900 - a decline of 5,775 compared to March 2008. When completed, the annual General Fund savings associated with these reductions would be approximately $457 million, including fringe benefits.

In the 2010-11 Executive Budget, the Governor will seek to implement a number of workforce actions to reduce State employee salary costs. These actions are targeted to save $250 million in 2010-11 and may include options such as a salary deferral or the delay or reduction of a four percent general salary increase.

Mergers and Consolidations

The 2010-11 Executive Budget recommends eight proposals to merge or consolidate State agencies and public authorities, producing full annual savings of $14.8 million. This is the first step in an ongoing process of streamlining State agencies in smart and targeted manner that delivers essential services at a lower cost.

Recommendations in the 2010-11 Executive Budget include:

To streamline the State's economic development delivery structure and ensure that New York emerges as a leader in the knowledge, technology and innovation-based economy, the 2010-11 Executive Budget proposes merging the Department of Economic Development and the Empire State Development Corporation into a new Job Development Corporation (JDC). The JDC will continue functions performed by the previous bodies, and will be better able to provide economic development and perform job creation activities with improved efficiency. The merger of the State's economic development bodies is expected to save $4.7 million annually.

The Office of Homeland Security, State Emergency Management Office, the State 911 Board, the Office of Cyber Security and Critical Infrastructure Coordination and the Office of Fire Prevention and Control will merge into a single State agency, the Division of Homeland Security and Emergency Services, to provide greater support to local first-responders, improve coordination of a wide array of State and Federal grant programs, and advance the vision of a county-driven statewide communication network, delivering efficiency savings of $1.5 million annually. In addition, the consolidated agency will award new grants from the cellular surcharge to county consortiums to assist in the development of regional interoperable communication networks for use by both State and local first responder agencies.

The operations of the Crime Victims Board, Office for the Prevention of Domestic Violence, and Division of Probation and Correctional Alternatives will merge with the Division of Criminal Justice Services (DCJS). The important missions of these agencies will be preserved, coordinated and enhanced as specialized offices within DCJS. DCJS already provides administrative support to these smaller agencies, and a full merger offers a more efficient and cost-effective environment for the delivery of programs and services for which these agencies are responsible. The merger will also foster improved coordination of policies and programs, and consolidate grant operations. Overall, this action will produce efficiency savings of $1.9 million.

The Executive Budget merges the Office of Real Property Services into the Department of Taxation and Finance, achieving over $1.9 million in full annual savings by consolidating facilities and services in support of agency operations. This merger expands upon the current host agency arrangement between the agencies, which has already reduced overall costs for administrative support by $650,000, and improves coordination of property tax relief efforts.

The State Employment Relations Board (SERB) will be abolished and the Public Employment Board will absorb its remaining responsibilities for full annual savings of $1.3 million. The case for the elimination of SERB is overwhelmingly clear, as the Federal government has already assumed most of SERB's prior responsibilities.

The Office of Welfare Inspector General would share administrative services with the Office of Medicaid Inspector General to achieve administrative efficiency and strengthen collaborative efforts to detect and control public benefits fraud.

The Division of Housing and Community Renewal and "nyhomes" will remain separate entities, but will be consolidated under a single management structure that is expected to achieve synergies in areas such as administration, asset management and grant making, producing annual savings of $3.5 million.

The Governor proposes sweeping ethics reform, including the consolidation of all ethics-related functions into a single agency, thereby providing a consistent framework for making advisory decisions on ethical conduct and evaluating potential violations. The new Government Ethics Commission would combine the oversight of both the Executive and Legislative branches, as well as enforcement of the laws governing ethics, lobbying, and campaign finance.

Office of Taxpayer Accountability

On June 13, 2009, Governor David Paterson announced the creation of the Office of Taxpayer Accountability (OTA). Its mission is to save taxpayer money by eliminating waste, fraud and abuse; achieving economies of scale; breaking down silos between State agencies; establishing an enterprise approach to State government; and sharing services to streamline functions.

ONGOING EFFORTS TO ROOT OUT WASTE, FRAUD AND ABUSE

In the past six months, OTA has generated nearly $27 million in savings by leveraging the State's buying power and directing State agencies to cut out wasteful spending by taking actions such as reducing travel by 25 percent, eliminating unnecessary printing and copying, and replacing paper processes with electronic submissions and notifications. In 2010, OTA will take additional actions to root out waste, fraud and abuse by:

• Increasing the use of debit cards for State payments

• Taking maximum advantage of the savings to be realized from the use of procurement cards

• Reducing energy consumption and set electronic devices to "power down" sleep settings

• Auditing utility services

• In cooperation with the Office of General Services (OGS), consolidating, renegotiating and auditing leases

• Finding additional aggregate purchasing opportunities, including enterprise information technology procurements

• Carefully monitoring and evaluating the State's fleet Inventory

• Aggressively overseeing and monitoring agency internal audit plans to insure that audits are risk based, protect taxpayer money, hold state officials accountable for funds being spent as effectively and efficiently as possible, and help prevent and eliminate waste, fraud and abuse.

An increasing crackdown on tax and Medicaid fraud is also an important component of Governor Paterson's budget. Through targeted initiatives and increased staffing, Medicaid fraud recoveries ($300 million) and tax audit and compliance activities ($221 million) are expected to increase dramatically.

2010-11 OTA EXECUTIVE BUDGET PROPOSALS

SHARED SERVICES INITIATIVES

Building on these actions, the 2010-11 Executive Budget advances the specific additional Office of Taxpayer Accountability recommendations detailed below. It is expected that these and its other efforts to streamline State operations will produce recurring savings of at least $50 million in 2010-11. They include the following:

CUSTOMER SERVICE

• Create a one-stop-shop (E-licensing) for businesses and professionals seeking licenses and permits to conduct business in the New York. Five agencies are currently pursuing an enterprise electronic system to modernize and consolidate aging legacy systems or create one where one currently does not exist. Once operational, additional agencies will migrate onto this platform as their systems become obsolete or require major upgrades. Developing a single statewide enterprise application is projected to avoid costs of $9 million, with further savings accruing as more agencies migrate in the future.

• Consolidate call centers to improve customer service and lower State spending. Currently the State operates myriad independent call centers and has hundreds of dedicated lines and staff devoted to this function. Initially, savings will be realized by reducing the number of toll free lines and renegotiating contracts. By establishing a central management structure and knowledge repository, the ultimate goal of enhancing staff productivity and decreasing redundancy will be achieved over time. These efforts are projected to generate net savings of $3.4 million in SFY 2010-11.

TECHNOLOGY

• In-source information technology consultants. Pursuant to Chapter 500 of the Laws of 2009, efforts are underway to in-source up to 500 technology consultants, generating millions of dollars. For every 100 outside contractors replaced with State employees, it is estimated that the State will save between $2.5 and $3 million.

• Launch a new business model to jump start the consolidation of technology services under CIO/OFT. Capitalizing on the strategic vision of CIO/OFT, a charter will be established between OTA and CIO/OFT that requires a reduction in statewide technology costs and a focus on customer-driven business relations. In turn, State agencies will be mandated to utilize CIO/OFT services and adhere to statewide technology policies and principles. A governance structure will be established to ensure that agencies have a voice in how technology decisions are made and service level agreements will be established to ensure transparency and accountability. Outside experts will be sought to help transform OFT's business model and ensure the State is trained and operating as efficiently and effectively when purchasing IT products and delivering services statewide. The following services will be developed in the coming year:

• Consolidate all agencies onto a single e-mail platform to gain operational efficiencies. Over 40 agencies will migrate to the State's email platform over the next eighteen months. By consolidating all State agencies' e-mail systems into a single system, the State will gain operational efficiencies that are anticipated to result in at least $4 million in annual savings when fully implemented, and will position the State for unified communications beyond e-mail which will further lower information technology costs.

• Enter into a public-private partnership to develop a shared data center. By pursing a cooperative effort with institutions of higher education and perhaps the private sector, true economies of scale can be achieved, economic development can be advanced and combined resources can be leveraged to develop a new model for future facility projects.

• Fast track the State's ability to utilize Voice over Internet Protocol (VoIP). This telecommunications technology will allow for audio and data transmission over the Internet and/or other digital networks to assist agencies with achieving greater operational efficiencies. These efforts have already begun with the Department of Tax and Finance.

ASSET MANAGEMENT

• Transform the State's decentralized approach to asset management into an enterprise solution that furthers both short-term and strategic objectives. The State will deploy an asset management module to provide immediate insight into its holdings - everything from blackberries to cars to real estate - as a first step towards better management and future decision making. Real estate portfolio optimization will also be vigorously pursued. Outside expert services will be sought to rationalize the State's disparate, cross-agency processes for managing, operating and disposing of State-owned and leased space. This space utilization effort will be broad, proactive and intrinsically linked to changes in agency missions, workforce and process improvements.

HUMAN RESOURCES

• Create a single statewide human resources system (e-HR) that contains electronic personnel records (recruitment to retirement) for each State employee. While completion of such a system will take time and resources, in FY 2010-11 the State will start by completing an inventory of the State's myriad HR systems and business processes to indentify best practices and re-engineering opportunities, including time and attendance to reduce waste, fraud, and abuse. A governance structure will be established to ensure appropriate agency involvement.

• Develop an enterprise Learning Management System (LMS). Deploy a statewide LMS system, while also planning for it to become part of a larger e-HR system in the future. This effort will advance two key budget priorities - delivering low cost online training to first responders through the public safety training facility at Oriskany and assisting managers with tracking the IT skills of the State's workforce to decrease the use of consultants.

PROCUREMENT

• Modernize the State's procurement processes to leverage the State's buying power and improve efficiencies. The State will issue an RFP to obtain the services of a strategic sourcing vendor to analyze what the State spends in the context of the current market economy and ensure an emphasis on operational improvements. This data will establish standards for commonly purchased goods and services, enabling the State to consolidate purchases at lower prices and with better terms and conditions. Assuming ten distinct spending categories can be addressed next year, we estimate savings of $10 million based on industry standards and other states' experience.

• Automate procurement processes. OGS, in cooperation with the statewide Financial System, will pilot new technology to automate procurement process workflow and create an electronic library of standardized bid and contract language to support the effort to create purchasing best practices.

FINANCE

• Create a single statewide financial management system (SFS). Efforts are accelerating to create a single, statewide financial system, serving both the Office of the State Comptroller and State agencies. Previously independent projects overseen by OSC and DOB have merged to implement a single shared system, with the first phase expected to be implemented by next year. This joint approach can reduce project costs by $24 million.

• Improve the collection of all State non-tax debt. Several State agencies and the Office of the Attorney General are collaborating to develop improved processes for debt collection, which will rely more heavily on a centralized, standardized collection agent. A minimum of $5 million in recovered revenue is expected as a result of these improved processes.

EMPIRE-STAT

• EmpireStat will be a critical tool for Governor Paterson and the public to assess whether the State is making real progress in areas that matter to New Yorkers: Economic Development/Jobs, Health Care/Vulnerable Youth, and Public and Road Safety. This tool will be used to conduct agency performance reviews, hold agencies responsible for their performance, report directly to New York State taxpayers on that performance, and provide direction for improvement where necessary.

Posted by Lucas A. Ferrara, Esq. at 5:00 PM | Permalink | TrackBacks (0) | Comments (0)

ATTORNEY GENERAL CUOMO SUES TWO IMMIGRATION SERVICES ORGANIZATIONS FOR PROVIDING FRAUDULENT LEGAL SERVICES

Lawsuit seeks restitution and an end to fraudulent practices

Today's lawsuit is latest action in Cuomo's ongoing immigration fraud  investigation

 [En Español] 

NEW YORK, NY (January 14, 2010) - Attorney General Andrew M. Cuomo today sued two immigration services organizations for defrauding immigrants with false promises of citizenship, engaging in the unauthorized practice of law, and illegally charging exorbitant fees for services. The lawsuits were filed against International Immigrants Foundation, Inc. ("IIF"), International Professional Association, Inc. ("IPA"), and their President Edward Juarez, all operating in New York City. IIF and IPA are both not-for-profit organizations that generate millions of dollars in revenue each year.

The Attorney General seeks to prevent these organizations from continuing their fraudulent practices and seeks restitution for victims. The Office of the Attorney General is also coordinating with several New York legal associations to help handle the organizations' existing cases and to protect innocent victims. This case is a part of Attorney General Cuomo's ongoing investigation into immigration fraud.

"These businesses make millions of dollars by exploiting the dreams of New York's immigrant community," said Attorney General Cuomo. "By lying about their ability to provide legitimate legal services, these organizations threaten to devastate families and their hopes of a new life. We intend to hold these organizations accountable for their actions and their blatant disregard for the people they claim to help."

The Attorney General's lawsuit alleges that IIF and IPA misrepresent their qualifications to provide immigration-related legal services, falsely promise specific legal results, and illegally charge excessive fees for their services. Specifically, they lure immigrants through newspaper advertisements, articles, conferences, and television and radio shows to purchase a "membership" with their organization by promising that members receive special privileges including free or low cost legal representation. Membership costs include a $100 registration fee and dues of $30 per month. However, members are then charged at least several thousand dollars more to have immigration papers prepared and filed. They also provide members with their "International Citizen Photo Identification Card," which they falsely claim guarantees legal representation and provides special privileges if the member is detained by law enforcement agencies.

The illegal actions of IIF and IPA have disastrous consequences on immigrant communities. In addition to being forced to pay substantial fees, victims and their families are put at risk of suffering permanent damage as a result of receiving incorrect immigration-related legal advice. In one instance, an individual who followed the advice of IIF and IPA was detained and the organizations never appeared to represent him. Another member was eligible to obtain a Green Card, but lost his opportunity due to the organizations' delay and negligence, despite paying more than $18,000 in fees and costs. Other clients were subject to deportation due to inadequate or negligent legal representation.

New York State law prohibits a non-lawyer from practicing law, appearing as or purporting to be an attorney-at-law, or providing legal advice of any kind. Non-lawyers can only provide clerical services, such as translating or mailing documents, unless the non-lawyer has been accredited and his or her organization has been recognized by the federal Board of Immigration Appeals. Further, it is illegal for not-for-profit immigrant service providers to charge excessive fees for services. The services must be provided free of charge or at a very nominal rate.

New York State Senator José M. Serrano said, "Immigrants helped build this city, state and nation. Defrauding immigrants is not only an injustice to an integral segment of the Latino community, but to all New Yorkers. I look forward to continuing to work with Attorney General Cuomo to combat immigration fraud and help secure the future of new citizens."

New York State Assemblyman Adriano Espaillat said, "New York City's immigrant communities are an integral part of our identity and our character. Unfortunately, unscrupulous scammers systematically target immigrants and try to exploit them. Often, victims of these schemes are only trying to secure a better life for themselves and their families. Attorney General Cuomo's action will help put a stop to one of the most egregious offenders and will help keep thousands of New York's immigrant families safe."

New York State Assemblyman Peter Rivera said, "Fraudulent organizations that scam immigrants and provide faulty legal advice can cause life-altering effects for hard-working immigrants and their entire families. Without action, these organizations would continue to rob immigrants of their savings while jeopardizing their ability to pursue a life in this country. I stand firmly with the Attorney General in combating immigration fraud and in working to bring these scammers to justice."

Jason Abrams, Chair of Committee on the Unauthorized Practice of Law for the American Immigration Lawyers Association in New York said, "By filing this lawsuit, the Attorney General has taken yet another significant step in protecting immigrant communities from fraud. In hope of renewing or obtaining legal status, many immigrants pay thousands of dollars - their life savings in most instances - to people who advertise and falsely claim to be lawyers and falsely promise to obtain residency or citizenship for their customers. This conduct is not only morally wrong; it is also illegal. And legitimate immigration lawyers are often left picking up the pieces for these families. The Attorney General's ongoing effort to combat immigration fraud has and continues to make a huge difference in protecting communities throughout this State."

Today's lawsuit is the latest stage of Attorney General Cuomo's ongoing investigation into allegations that immigrants and their families are being targeted for fraudulent and unauthorized immigration-related services in New York. Over the past several months, the Attorney General shut down four businesses for providing legal services to thousands of immigrants without being licensed to do so. The companies were required to pay more than $100,000 in penalties and were permanently prohibited from operating immigration services businesses. Attorney General Cuomo has also sued three organizations for engaging in the unauthorized practice of law and targeting immigrants and has issued more than 100 subpoenas to businesses and individuals allegedly engaged in unauthorized immigration-related services.

The case against IIF, IPA, and Mr. Juarez is being handled by Assistant Deputy Counselor Elizabeth De León and Assistant Attorneys General Vilda Vera Mayuga and Sandra Abeles of the Attorney General's Civil Rights Bureau, under the supervision of Civil Rights Bureau Chief Alphonso B. David and Counsel for Civil Rights Spencer Freedman, and by Assistant Attorneys General Caroline Press and Lauren Kittilsen of the Attorney General's Charities Bureau, under the supervision of Charities Bureau Chief Jason Lilien, with the assistance of Investigators John McManus and David Negron.

If you have been a victim of immigration assistance fraud, please contact the Attorney General's Immigration Services Fraud Unit Hotline at (866) 390-2992 or visit www.ag.ny.gov.

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GOVERNOR PATERSON ANNOUNCES MERGERS, CONSOLIDATIONS, SHARED SERVICES TO STREAMLINE STATE GOVERNMENT, SAVE TAXPAYER DOLLARS

Important Step towards Changing and Restructuring the Way New York Does Business; Making State Government Smarter, Smaller, and Less Costly

Efforts of Office of Taxpayer Accountability Will Make Government More Efficient & Eliminate Waste

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Governor David A. Paterson today announced a series of State agency and public authority mergers and consolidations, as well as actions identified by his Office of Taxpayer Accountability, which he will advance in his 2010-11 Executive Budget to save taxpayer dollars. These efforts will help move forward Governor Paterson's goal of a restructured and more streamlined State government at a time when difficult cuts are required across every area of State spending to address an historic fiscal crisis.

"In a time of plummeting revenues and limited resources, it is critical to ensure that important State services are delivered in the most cost-effective and efficient manner possible," Governor Paterson said. "Given the substantial financial difficulties we are facing, significant additional cuts will be necessary in my proposed budget. But the improved efficiencies we are announcing today are another important step forward in our efforts to lower costs and root out waste on behalf of New York's taxpayers."

Mergers and Consolidations

The 2010-11 Executive Budget will recommend seven proposals to merge or consolidate State agencies and public authorities, producing full annual savings of $14.8 million. This is the first step in an ongoing process of streamlining State agencies in smart and targeted manner that delivers essential services at a lower cost.

Recommendations in the 2010-11 Executive Budget include:

To streamline the State's economic development delivery structure and ensure that New York emerges as a leader in the knowledge, technology and innovation-based economy, the 2010-11 Executive Budget proposes merging the Department of Economic Development and the Empire State Development Corporation into a new Job Development Corporation (JDC). The JDC will continue functions performed by the previous bodies, and will be better able to provide economic development and perform job creation activities with improved efficiency. The merger of the State's economic development bodies is expected to save $4.7 million annually.

The Office of Homeland Security, State Emergency Management Office, the State 911 Board, the Office of Cyber Security and Critical Infrastructure Coordination and the Office of Fire Prevention and Control will merge into a single State agency, the Division of Homeland Security and Emergency Services, to provide greater support to local first-responders, improve coordination of a wide array of State and Federal grant programs, and advance the vision of a county-driven statewide communication network, delivering efficiency savings of $1.5 million annually. In addition, the consolidated agency will award new grants from the cellular surcharge to county consortiums to assist in the development of regional interoperable communication networks for use by both state and local first responder agencies.

The operations of the Crime Victims Board, Office for the Prevention of Domestic Violence, and Division of Probation and Correctional Alternatives will merge with the Division of Criminal Justice Services (DCJS). The important missions of these agencies will be preserved, coordinated and enhanced as specialized offices within DCJS. DCJS already provides administrative support to these smaller agencies, and a full merger offers a more efficient and cost-effective environment for the delivery of programs and services for which these agencies are responsible. The merger will also foster improved coordination of policies and programs, and consolidate grant operations. Overall, this action will produce efficiency savings of $1.9 million.

The Executive Budget merges the Office of Real Property Services into the Department of Taxation and Finance, achieving over $1.9 million in full annual savings by consolidating facilities and services in support of agency operations. This merger expands upon the current host agency arrangement between the agencies, which has already reduced overall costs for administrative support by $650,000, and improves coordination of property tax relief efforts.

The State Employment Relations Board (SERB) will be abolished and the Public Employment Board will absorb its remaining responsibilities for full annual savings of $1.3 million. The case for the elimination of SERB is overwhelmingly clear, as the Federal government has already assumed most of SERB's prior responsibilities.

The Office of Welfare Inspector General would share administrative services with the Office of Medicaid Inspector General to achieve administrative efficiency and strengthen collaborative efforts to detect and control public benefits fraud.

NYHOMES and the Division of Housing and Community Renewal will remain separate entities, but will be consolidated under a single management structure that is expected to achieve synergies in areas such as administration, asset management and grant making, producing annual savings of $3.5 million.

Office of Taxpayer Accountability

On June 13, 2009, Governor David Paterson announced the creation of the Office of Taxpayer Accountability (OTA). Its mission is to save taxpayer money by eliminating waste, fraud and abuse; achieving economies of scale; breaking down silos between State agencies; establishing an enterprise approach to State government; and sharing services to streamline functions.

ONGOING EFFORTS TO ROOT OUT WASTE, FRAUD AND ABUSE

In the past six months, OTA has generated nearly $27 million in savings by leveraging the State's buying power and directing State agencies to cut out wasteful spending by taking actions such as reducing travel by 25 percent, eliminating unnecessary printing and copying, and replacing paper processes with electronic submissions and notifications. In 2010, OTA will take additional actions to root out waste, fraud and abuse by:

• Increasing the use of debit cards for State payments
• Taking maximum advantage of the savings to be realized from the use of procurement cards
• Reducing energy consumption and set electronic devices to "power down" sleep settings
• Auditing utility services
• In cooperation with the Office of General Services (OGS), consolidating, renegotiating and auditing leases
• Finding additional aggregate purchasing opportunities, including enterprise information technology procurements
• Carefully monitoring and evaluating the State's fleet Inventory
• Aggressively overseeing and monitoring agency internal audit plans to insure that audits are risk based, protect taxpayer money, hold state officials accountable for funds being spent as effectively and efficiently as possible, and help prevent and eliminate waste, fraud and abuse.

An increasing crackdown on tax and Medicaid fraud will also be an important component of Governor Paterson's budget, which will be released next week.

2010-11 OTA EXECUTIVE BUDGET PROPOSALS
SHARED SERVICES INITIATIVES

Building on these actions, the 2010-11 Executive Budget will advance the specific additional Office of Taxpayer Accountability recommendations detailed below. It is expected that these and its other efforts to streamline State operations will produce recurring savings of at least $50 million in 2010-11. They include the following:

CUSTOMER SERVICE

• Create a one-stop-shop (E-licensing) for businesses and professionals seeking licenses and permits to conduct business in the New York. Five agencies are currently pursuing an enterprise electronic system to modernize and consolidate aging legacy systems or create one where one currently does not exist. Once operational, additional agencies will migrate onto this platform as their systems become obsolete or require major upgrades. Developing a single statewide enterprise application is projected to avoid costs of $9 million, with further savings accruing as more agencies migrate in the future.

• Consolidate call centers to improve customer service and lower State spending. Currently the State operates myriad independent call centers and has hundreds of dedicated lines and staff devoted to this function. Initially, savings will be realized by reducing the number of toll free lines and renegotiating contracts. By establishing a central management structure and knowledge repository, the ultimate goal of enhancing staff productivity and decreasing redundancy will be achieved over time. These efforts are projected to generate net savings of $3.4 million in SFY 2010-11.

TECHNOLOGY

• In-source information technology consultants. Pursuant to Chapter 500 of the Laws of 2009, efforts are underway to in-source up to 500 technology consultants, generating millions of dollars. For every 100 outside contractors replaced with State employees, it is estimated that the State will save between $2.5 and $3 million.

• Launch a new business model to jump start the consolidation of technology services under CIO/OFT. Capitalizing on the strategic vision of CIO/OFT, a charter will be established between OTA and CIO/OFT that requires a reduction in statewide technology costs and a focus on customer-driven business relations. In turn, State agencies will be mandated to utilize CIO/OFT services and adhere to statewide technology policies and principles. A governance structure will be established to ensure that agencies have a voice in how technology decisions are made and service level agreements will be established to ensure transparency and accountability. Outside experts will be sought to help transform OFT's business model and ensure the State is trained and operating as efficiently and effectively when purchasing IT products and delivering services statewide. The following services will be developed in the coming year:

• Consolidate all agencies onto a single e-mail platform to gain operational efficiencies. Over 40 agencies will migrate to the State's email platform over the next eighteen months. By consolidating all State agencies' e-mail systems into a single system, the State will gain operational efficiencies that are anticipated to result in at least $4 million in annual savings when fully implemented, and will position the State for unified communications beyond e-mail which will further lower information technology costs.

• Enter into a public-private partnership to develop a shared data center. By pursing a cooperative effort with institutions of higher education and perhaps the private sector, true economies of scale can be achieved, economic development can be advanced and combined resources can be leveraged to develop a new model for future facility projects.

• Fast track the State's ability to utilize Voice over Internet Protocol (VoIP). This telecommunications technology will allow for audio and data transmission over the Internet and/or other digital networks to assist agencies with achieving greater operational efficiencies. These efforts have already begun with the Department of Tax and Finance.

ASSET MANAGEMENT

• Transform the State's decentralized approach to asset management into an enterprise solution that furthers both short-term and strategic objectives. The State will deploy an asset management module to provide immediate insight into its holdings - everything from blackberries to cars to real estate - as a first step towards better management and future decision making. Real estate portfolio optimization will also be vigorously pursued. Outside expert services will be sought to rationalize the State's disparate, cross-agency processes for managing, operating and disposing of State-owned and leased space. This space utilization effort will be broad, proactive and intrinsically linked to changes in agency missions, workforce and process improvements.

HUMAN RESOURCES

• Create a single statewide human resources system (e-HR) that contains electronic personnel records (recruitment to retirement) for each State employee. While completion of such a system will take time and resources, in FY 2010-11 the State will start by completing an inventory of the State's myriad HR systems and business processes to indentify best practices and re-engineering opportunities, including time and attendance to reduce waste, fraud, and abuse. A governance structure will be established to ensure appropriate agency involvement.

• Develop an enterprise Learning Management System (LMS). Deploy a statewide LMS system, while also planning for it to become part of a larger e-HR system in the future. This effort will advance two key budget priorities - delivering low cost online training to first responders through the public safety training facility at Oriskany and assisting managers with tracking the IT skills of the State's workforce to decrease the use of consultants.

PROCUREMENT

• Modernize the State's procurement processes to leverage the State's buying power and improve efficiencies. The State will issue an RFP to obtain the services of a strategic sourcing vendor to analyze what the State spends in the context of the current market economy and ensure an emphasis on operational improvements. This data will establish standards for commonly purchased goods and services, enabling the State to consolidate purchases at lower prices and with better terms and conditions. Assuming ten distinct spending categories can be addressed next year, we estimate savings of $10 million based on industry standards and other states' experience.

• Automate procurement processes. OGS, in cooperation with the statewide Financial System, will pilot new technology to automate procurement process workflow and create an electronic library of standardized bid and contract language to support the effort to create purchasing best practices.

FINANCE

• Create a single statewide financial management system (SFS). Efforts are accelerating to create a single, statewide financial system, serving both the Office of the State Comptroller and State agencies. Previously independent projects overseen by OSC and DOB have merged to implement a single shared system, with the first phase expected to be implemented by next year. This joint approach can reduce project costs by $24 million.

• Improve the collection of all State non-tax debt. Several State agencies and the Office of the Attorney General are collaborating to develop improved processes for debt collection, which will rely more heavily on a centralized, standardized collection agent. A minimum of $5 million in recovered revenue is expected as a result of these improved processes.

EMPIRE-STAT

• EmpireStat will be a critical tool for Governor Paterson and the public to assess whether the State is making real progress in areas that matter to New Yorkers: Economic Development/Jobs, Health Care/Vulnerable Youth, and Public and Road Safety. This tool will be used to conduct agency performance reviews, hold agencies responsible for their performance, report directly to New York State taxpayers on that performance, and provide direction for improvement where necessary.

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ATTORNEY GENERAL CUOMO ANNOUNCES $24 MILLION MEDICAID FRAUD SETTLEMENT WITH THREE HOME HEALTH AGENCIES

Companies to Pay for Employing Untrained Home Health Aides

Case Part of AG Cuomo's 'Operation Home Alone'

NEW YORK, N.Y. (December 17, 2009) - Attorney General Andrew M. Cuomo and U.S. Attorney Benton J. Campbell today announced a settlement with three home health agencies resolving Cuomo's lawsuit against one of them and three whistleblower lawsuits that alleged the agencies defrauded the Medicaid program. This is the largest settlement Cuomo's Medicaid Fraud Control Unit has reached with the home health industry in New York State.

The settlement arises from the agencies' use of hundreds of home health aides who had received little or no required training. The agencies sent these aides daily into the homes of New York's elderly, frail and indigent to provide sensitive medical care. As a result, these aides caused Medicaid to be billed for millions of dollars for services they were not qualified to provide.

Under the terms of the settlement, B&H Health Care Services, Inc., known as Nursing Personnel Home Care ("Nursing Personnel"), a Brooklyn-based licensed home care service agency, along with Excellent Home Care Services, LLC ("Excellent") of Brooklyn, and Extended Nursing Personnel CHHA, LLC ("Extended") of Manhattan, both certified home health agencies, will return $23,963,100 to Medicaid, a program jointly funded by the state and federal governments. Of this amount, the State of New York will receive a total of $14,377,860.

"The size of this settlement underscores the seriousness of the allegations and the importance of vigorous oversight of the Medicaid program and the medical care of our loved ones," said Attorney General Cuomo. "Being treated at home is an important option for many New Yorkers, and the companies that provide this service at taxpayer expense have an obligation to ensure that the health care workers they employ are qualified for the job."

"This settlement reflects this Office's commitment to investigate allegations of fraud committed on the Medicare or Medicaid programs, especially when the alleged fraud could impact the standard of care received by New Yorkers in need of medical assistance," said Benton J. Campbell, U.S. Attorney for the Eastern District of New York.

"Our nation's Medicare and Medicaid patients deserve nothing less than quality health care they can depend on," said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. "When home health agencies cut corners to avoid compliance with legal training standards, they seriously undermine the integrity of the care they provide."

Medicaid requires home health aides - who primarily care for elderly patients, administer medication, and provide services such as catheter care, colostomy care and wound care - to successfully complete a training program licensed by the Department of Health or the State Education Department. All such aides must receive a minimum of 75 hours of training, including sixteen hours of supervised practical training conducted by a registered nurse.

Attorney General Cuomo's "Operation Home Alone" has exposed a statewide range of fraudulent practices and schemes in the home health care industry by home health and personal care aides, the schools that train them, and the agencies that recruit and employ them. During the course of Cuomo's industry-wide investigation, MFCU uncovered certain HHA training schools that sold fraudulent HHA certificates to individuals who had not received the required training. The investigation revealed that Nursing Personnel employed hundreds of HHAs with fraudulent certificates from the bad training schools. These HHAs were then assigned to work for Extended and Excellent and were sent daily into the homes of New York's elderly, frail and indigent to provide sensitive medical care. The services provided were paid for by the Medicaid program.

The settlement is the result of a joint investigation led by Attorney General Cuomo's Medicaid Fraud Control Unit, the Civil Division of the United States Department of Justice, the United States Attorney for the Eastern District of New York, and the Office of Investigations for the U.S. Department of Health and Human Services' Office of Inspector General. The investigation included allegations from two
whistleblowers, who filed "whistleblower" complaints under the New York State and federal False Claims Acts, which authorize persons who have uncovered fraud against the government to file a civil action against the alleged wrongdoer and come forward with information about the false claims to the Attorney General's Office or the Department of Justice. The False Claims Acts provide an incentive to whistleblowers, who may share in a portion of money recovered by the government on their claims. The Acts also provide protection against job retaliation for whistleblowing.

To date, the investigation has resulted in the convictions of aides operating with false credentials, schools that sell the false credentials, and licensed agencies that employ these unqualified aides. Other prosecutions are pending.

The settlement resolves allegations that Nursing Personnel, Extended and Excellent knowingly presented, or caused to be presented, false claims to Medicaid for reimbursement for home health care services provided by home health aides who had obtained HHA certificates without obtaining the requisite training. In addition to the payment of the settlement amount, all three agencies will be subject to the terms of a corporate integrity agreement entered into with the New York State Office of the Medicaid Inspector General on their continuing efforts to employ policies and procedures to ensure that all future home health aides ("HHAs") are properly certified. Nursing Personnel must also employ an outside monitor who will report to OMIG and Cuomo's office.

Today's settlements were initiated by lawsuits filed under the whistleblower provisions of the False Claims Act, which allow private citizens to file suit on behalf of the United States for fraud and share in any recovery. Maurice Keshner will receive approximately $1,693,343 from New York's recovery from Nursing Personnel. Deborah Yannicelli will receive approximately $994,080 from New York's recovery from Extended and Excellent.

Along with the rigorous enforcement of current laws through initiatives like "Operation Home Alone," Attorney General Cuomo succeeded in persuading the legislature to pass legislation creating a statewide registry of certified home health aides to be developed and maintained by the state Department of Health. The registry will enhance the State's ability to oversee the industry, provide potential employers with the ability to screen home health aides, and help to detect and deter fraud. A registry already exists for nurse aides that work in nursing homes. By creating a registry for home health aides, the state extends the same protections that exist in the nursing homes to care-dependent persons being cared for in their homes.

New Yorkers are urged to report cases of suspected fraud to the Attorney General's toll-free Medicaid Fraud Hotline, at 1-866-NYS-FIGHT (697-3444).

Attachment:

• Nursing Personnel State Settlement Agreement - Signed
• Extended Home Care State Agreement Final
• Excellent State Settlement Agreement - Signed Final

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ATTORNEY GENERAL CUOMO ANNOUNCES INTERIM COURT ORDER SHUTTING DOWN ALL ACTIVITIES OF THE "UNITED HOMELESS ORGANIZATION"

NEW YORK, NY - - Yesterday, Attorney General Andrew M. Cuomo announced his office has obtained an interim court order shutting down the New York City-based not-for-profit group United Homeless Organization, Inc. ("UHO"). The court order requires UHO to immediately halt all charitable solicitations from the public by any means and freezes UHO's assets, including bank accounts and vehicles.

Last month Attorney General Cuomo filed a lawsuit against UHO, its founder and president Stephen Riley, and its director Myra Walker, alleging that Riley and Walker used the organization to dupe the public into donating cash to fund services for the homeless, when the money was instead used for personal expenses.

"Today's court order prevents UHO from further exploiting the trust and good will of New Yorkers," said Attorney General Cuomo. "But this organization's bad behavior shouldn't undermine the public's willingness to donate to legitimate charities. As my office continues to aggressively monitor the activities of UHO and other charities, New Yorkers should feel even more confident in giving this holiday season."

According to the lawsuit filed in New York Supreme Court, New York County, Riley and Walker had UHO workers set up tables across the city with plastic jugs to collect cash donations, telling sympathetic passersby that donated funds would be used for services for the homeless. However, Cuomo's investigation revealed that money collected went directly to Riley and Walker, was kept by the people working for UHO, or was used to continue the fraud, instead of funding charitable programs or services. The lawsuit charges Riley, Walker, and UHO with engaging in a scheme to defraud and violating New York State's not-for-profit and charitable solicitation laws.

The order was issued by Justice Barbara R. Kapnick of New York Supreme Court. The next court date is scheduled for January 11, 2010.

Attorney General Cuomo's lawsuit charged that UHO:

- Uses donations for personal expenses
According to Cuomo's lawsuit, UHO employees (also called "table workers" or "members") pay Riley and Walker a fixed daily fee for the right to use the UHO tables, jugs, aprons, and other paraphernalia. After paying the fee, the workers then pocket any daily cash donations they receive. In turn, Riley and Walker use the fees collected from workers for their own living and travel expenses, while claiming in annual reports to the Attorney General's office that they received no income from UHO. In addition, Riley has misappropriated UHO assets, including four UHO vehicles that he transferred to his own name.

- Solicits donations with false and misleading solicitations
UHO workers encourage donations with false and misleading statements that the funds will "help the homeless," "feed the homeless," and otherwise go to "charities and different churches" or to support pantries, shelters, and detox centers. In fact, Cuomo's investigation revealed that UHO does not operate any shelters, soup kitchens, or food pantries. It does not purchase food, clothing, or other essential items for distribution to the homeless, or provide social workers or any social services to assist the homeless or fund other charities' efforts on behalf of the homeless. The Attorney General's investigation also found that Riley and Walker failed to secure a public solicitation license for UHO. Despite this, workers are given UHO's incorporation receipt to display at their tables to mislead the public into believing it is a permit.

- Fails to maintain records of money collected and paid out
UHO fails to maintain any records of the hundreds of thousands of dollars of funds collected and pocketed by UHO workers at the tables. In addition, more than fifty percent of the cash withdrawn from UHO's bank account in 2007 and 2008 lacked any documentation explaining the purpose for which the funds were spent. Since UHO failed to properly book its revenues and expenses, it filed false and misleading financial reports with the Attorney General's office.

- Has no governance or financial oversight
UHO is operated by Riley and Walker without any board or financial oversight, which New York State law requires of all charities. Riley and Walker are the only directors on UHO's board, despite legal requirements that New York State not-for-profits have three directors. UHO has not held an election for directors since its incorporation in 1993.

The lawsuit also charged UHO, Riley, and Walker with engaging in a scheme to defraud in connection with charitable solicitations and making false filings with the Attorney General. The lawsuit further charged Riley and Walker with violations of New York's Not-For-Profit Corporation Law for breaches of fiduciary duty in connection with UHO's governance, and for wasting and misappropriating UHO's assets. In addition, the lawsuit charged Walker and Riley with failing to properly administer charitable assets.

The case is being handled by Assistant Attorneys General Patricia Northrop and Carolyn Ellis, Chief of the Charities Bureau Jason Lilien, and Senior Trial Counsel for Social Justice Kathryn Diaz.

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ATTORNEY GENERAL CUOMO ANNOUNCES A SETTLEMENT WITH DELLA SUZUKI TO STOP DECEPTIVE ADVERTISING CAMPAIGN

Plattsburgh dealership's ads misled consumers with offers of zero-percent financing and "guaranteed credit approval," with unreadable foot notes contradicting the offers

PLATTSBURGH, N.Y. -- Attorney General Andrew M. Cuomo today announced that his office reached a settlement with a Plattsburgh-area car dealership stopping it from deceiving customers through false advertisements.

Under a Consent Judgment entered in Clinton County Supreme Court, Della North, Inc. will pay costs and penalties of $7,000 to the state and cease running deceptive advertisements for its Della Suzuki dealership, located on Route 3 in Plattsburgh. The company must also maintain copies of all its advertisements for two years for inspection by the Attorney General's Office.

"Businesses that try to deceive consumers through obscure footnotes and misleading offers are doing a disservice to the public and creating an unfair marketplace," said Attorney General Cuomo. "My office will continue to monitor this company's advertisements to ensure that they are fair and honest."

The Attorney General's investigation found that Della was engaging in advertising that violated federal and state laws, as well as the Attorney General's Automobile Advertising Guidelines.

Attorney General Cuomo's Office found that Della Suzuki's print advertisements specifically:

• Misled consumers by appearing to offer both "0%" financing and a specified low purchase price, when in fact a higher purchase price was charged for vehicles financed at "0%"
• Misled consumers by claiming "Guaranteed Credit Approval ... Everyone is Approved" and that zero-percent financing was available, only to then significantly limit or contradict the offers in nearly-unreadable 6-point font footnotes
• Did not list any APR for financing offers and failed to list the number of payments for the offer

Attorney General Cuomo urges any consumer who believes they are a victim of fraudulent or deceptive business practices to contact his office at 800-771-7755. Auto advertising guidelines for dealers are available online at www.oag.state.ny.us/bureaus/consumer_frauds/pdfs/AdGuidelinesForDealers.pdf

The matter was handled by Assistant Attorney General Glen Michaels under the Supervision of Assistant Attorney General-in-Charge of the Plattsburgh Regional Office Robert Glennon and Deputy Attorney General for Regional Affairs J. David Sampson.

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In 2003, John Whittier started up a hedge fund called Wood River Partners LP. As its sole principal and general partner, Whittier hired Seward & Kissel (S&K) as the fund's legal counsel and the latter prepared the initial offering memorandum and its updates.

On September 30, 2005, S&K resigned as Wood River's counsel -- just a month before the Securities and Exchange Commission pursued civil penalties against Whittier and his hedge fund for purported violations of securities laws.

A group of investors, who had relied upon representations contained in those offering documents and purchased interests in the fund, alleged S&K had breached a fiduciary duty and violated a relationship of trust by continuing to update the offering memorandum when counsel supposedly knew of the company's misconduct.

After the New York County Supreme Court refused to grant S&K's dismissal request, the firm appealed to the Appellate Division, First Department, which found the investors' claims "too conclusory and without a factual basis."

Our State's highest court agreed that the investors failed to provide support for their belief that the lawyers aided or abetted the underlying "fraud." Moreover, without a direct relationship with the group, S&K didn't owe a duty to them.

Who who, who who? To view a copy of the Court of Appeal's decision, please use this link: Eurycelia Partners, LP v. Seward & Kissel, LLP

 

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DiNapoli: Poor Oversight at Schenectady City SD Leads to $50K in Unverified Overtime for One Employee

Risk Assessments Not Completed as Required by Law $26K in Questionable Payments to Employees

Poor oversight by Schenectady City School District officials led to more than $50,000 in unverified overtime for one employee in one school year, annual risk assessments not being completed as required by law and $26,062 in questionable separation payments, according to an audit released today by State Comptroller Thomas P. DiNapoli.

"School district budgets are funded by local property taxpayers and state taxpayers," DiNapoli said. "And taxpayers should feel confident that their money is being put to good use. Schenectady City School District needs to step up and protect taxpayers' money better."

The audit, covering July 2007 to January 2009, found that district officials need to improve their oversight of the district's operations. Auditors learned the head utility worker, Steven Raucci, received more than $50,000 in overtime during the 2007-08 fiscal year for facilities management and energy management duties. However, the district lacked supporting documentation for what these duties entailed and verification that the hours were actually worked.

In addition, auditors determined the district's internal auditor, a certified public accounting firm, failed to complete annual risk assessments of the district by deadlines established by law. For 2006-07, the risk assessment was completed almost 14 months late and the risk assessment for 2007-08 had not yet been started when auditors completed their fieldwork in May 2009, making the risk assessment at least five months late. Without timely risk assessments, the district has no way of knowing if it is adequately safeguarding its assets.

DiNapoli's audit also found that complex contract language in agreements with district administrators and employees may have caused the district to pay $26,062 in separation payments that these individuals were not entitled to. In addition, auditors found district staff miscalculated payroll and overtime payments by $2,373. The assistant superintendent of business also failed to properly certify the district's payroll.

Auditors also discovered that $293,931 in claims paid by the district and approved by the district's claims auditor lacked proper documentation to ensure the district acquired goods and services in the most economical manner and in the best interest of taxpayers. Approving claims without proper documentation could result in the inappropriate payment of claims.

DiNapoli's office recommends that district officials:

• require employees to properly document overtime hours worked and duties performed during that time;
• investigate discrepancies in payroll, overtime and separation payments and recoup any overpayments;
• provide adequate supervision to ensure payroll is processed accurately and payment amounts are correct;
• ensure that internal audits are performed in a timely manner and in accordance with the law;
• make certain employee contracts and collective bargaining agreements provide clear language regarding separation payments; and
• ensure claims are properly audited and include adequate documentation.

The district disputes some of the audit's findings. The district's full response is included in the audit. To view the audit, visit: http://www.osc.state.ny.us/localgov/audits/schools/2009/schenectady.pdf.

School District Accountability
In order to improve accountability of the state's schools, DiNapoli's office will audit all of New York's school districts and Boards of Cooperative Educational Services by 2010. The State Comptroller's office has completed 690 school audits and approximately 40 school audits are currently underway.

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ATTORNEY GENERAL CUOMO'S OFFICE SUES SMITHTOWN NISSAN FOR DECEIVING CUSTOMERS ABOUT SALE PRICES

Dealership regularly inflated prices on contracts beyond what was agreed upon ~Cuomo urges Smithtown customers who believe they were defrauded to contact his office

 

HAUPPAUGE, N.Y. (November 23, 2009) - Attorney General Andrew M. Cuomo today announced that his office has filed suit against Smithtown Nissan for surreptitiously altering contract prices after agreeing to a different price and terms with the consumer.

The Attorney General's office received dozens of complaints about Smithtown Nissan alleging deceptive practices, such as secretly adding unwanted and costly options to sales contracts or simply charging more for the car than what had been agreed to by consumers. The complaints alleged that the dealership, located at 535 Middle County Road in St. James and owned by Joseph O. Rubio, led them to believe they were paying one price for a vehicle, but ended up charging them much more.

The investigation also determined that Smithtown Nissan is in violation of a 2004 agreement with the Attorney General's Office that prohibited it from engaging in deceptive business practices.

"Based on this owner's history, this appears to be a new twist on an old scam," said Attorney General Cuomo. "Consumers agreed to pay one price and then received a rude awakening when they found the contract terms had been changed without their consent."

The Attorney General's investigation also found that the dealership often failed to provide customers with copies of their contracts, as required by state law. The dealership engaged in other deceptive practices at the expense of unsuspecting consumers, including adding undisclosed extended warranties, service contracts, options, and fees without consent. The dealership ignored repeated inquiries from customers seeking to cancel the added-on services and extended warranties.

Cuomo's office is seeking a court order to bar Smithtown from such practices, recover restitution for defrauded consumers, and obtain penalties and costs to the state. He urges any consumer who believes they were defrauded by Smithtown Nissan to contact his Suffolk Regional Office at 631-231-2401.

The matter is being handled by Acting Assistant Attorney General-In-Charge of the Suffolk Regional Office Alan Berkowitz.

Posted by Lucas A. Ferrara, Esq. at 3:30 PM | Permalink | TrackBacks (0) | Comments (1)

FTC Warns Internet Peddlers that Marketing Unproven H1N1 Flu Products May Be Illegal

The Federal Trade Commission last week sent 10 warning letters to Web site operators who made questionable claims that their products can prevent, treat, or cure the H1N1 flu, commonly known as swine flu. In an ongoing effort that began during the spring, the FTC told the companies - whose products include dietary supplements, air filtration devices, homeopathic remedies, items containing silver, and cleaning agents - that unless they have scientific proof for their claims, they are violating federal law and must drop the claims or face further action.

The FTC conducted its swine flu surf as part of the International Consumer Protection Enforcement Network's 11th Internet sweep, which took place from September 21 to 25, 2009. As part of this sweep, consumer protection agencies around the world targeted rapidly growing fraudulent and deceptive conduct on the Internet, with special emphasis on conduct exploiting financial crises or natural disasters such as the H1N1 pandemic. Besides sending warning letters to 10 operators, the FTC referred 14 other Web site operators - which it suspects are located outside the United States - to foreign law enforcement authorities.

"As consumers grow increasingly anxious about obtaining the H1N1vaccine for their children and other vulnerable family members, scam artists take advantage by selling them bogus remedies online," said David Vladeck, Director of the FTC's Bureau of Consumer Protection.

In collaboration with other enforcement agencies, including the U.S. Food and Drug Administration, the FTC will continue to work aggressively to identify, investigate, and take additional regulatory and law enforcement action against individuals or businesses that deceptively promote purported H1N1 products.

The FTC reminds consumers that the only products recommended for treatment of H1N1 flu are prescription antiviral drugs, including oseltamivir (brand name Tamiflu) and zanamivir (brand name Relenza).

The FTC's Consumer Alert, Rx for Products That Claim to Prevent H1N1? A Healthy Dose of Skepticism, warns the public to be skeptical of claims that products like pills, air filtration devices, and cleaning agents can kill or eliminate the virus. The alert advises consumers to:

• Know the facts: The H1N1 virus is thought to spread from person to person in the same way that seasonal flu spreads - mainly coughing or sneezing by people with the flu. Sometimes people may become infected by touching something with flu viruses on it and then touching their mouth, nose, or eyes.
• Keep your hands clean: Public health authorities advise that basic personal hygiene is the best protection against infection. Wash your hands thoroughly. When soap and water are not available, health authorities suggest using alcohol-based disposable hand wipes or gel sanitizers. These products are available in most supermarkets and drugstores.
• Check travel advisories for affected areas: To lower your risk of infection, the Centers for Disease Control and Prevention (CDC) suggests avoiding travel to affected regions.
• Seek medical attention: If you think either you may have influenza symptoms, or you may have been in direct contact with someone who has the flu, consult a health care professional immediately.
• Stay informed: For more information from the federal government about the H1N1 flu, check out flu.gov or visit the CDC at http://www.cdc.gov/h1n1flu/.
  To learn more, go to http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt083.shtm.

Consumers who wish to file a complaint against a company that they believe may be deceptively advertising H1N1 flu products are urged to call 1-877-FTC-HELP (1-877-382- 4357) or visit https://www.ftccomplaintassistant.gov/.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.

Posted by Lucas A. Ferrara, Esq. at 2:30 PM | Permalink | TrackBacks (0) | Comments (0)

OPERATORS OF BURIEN SALON PLEAD GUILTY IN CASE INVOLVING BRIBE AND ILLEGAL IMPORT OF COSMETIC EQUIPMENT

Burien Couple Tried to Bribe FDA Officer Over Radiation Emitting Device

TOAN LE, 51, and HANG HO, 41, a married couple residing in Burien, Washington, pleaded guilty today in U.S. District Court in Seattle in connection with their attempt to import and use a cosmetic device that had not been approved for use in the U.S. by the Food and Drug Administration. LE pleaded guilty to providing an Illegal Gratuity to Public Official and HO pleaded guilty to Introduction or Delivery for Introduction Into Interstate Commerce of Adulterated Device. When sentenced by U.S. District Judge Ricardo S. Martinez, LE faces up to two years in prison and HO faces up to one year in prison.

According to the records in the case, and the plea agreements signed today, TOAN LE owns Crystal Nails beauty salon in Burien, Washington, and HO is an employee of the salon. In July 2009, HO admits she attempted to import, into the United States, medical devices that had not been approved by the Food and Drug Administration. One of the devices was a "Skin Light Machine -- a laser type device for skin treatment. The device emits radiation at unknown levels. When the FDA Consumer Safety Officer made an inspection, LE admits he offered first $500 and later $800 to allow the salon to keep the machine and other adulterated goods. On July 13, 2009, in Tukwila, LE delivered an envelope containing $800 to the Consumer Safety Officer. The officer was cooperating with law enforcement. Under the terms of the plea agreement, LE and HO forfeit the $800, as well as a variety of items from their salon which were adulterated or misbranded, including nine skin light machines, four hand held massagers, creams, bath salts and tweezers.

Each year in the United States, including the State of Washington, consumers are injured by individuals who are neither licensed or trained to perform medical procedures. Oftentimes, the people performing these cosmetic treatments use drugs and devices not approved by the FDA for use in the United States. The injuries range from severe burns, infection and permanent scaring. The FDA has investigated cases where some consumers have died after receiving such treatments from individuals not licensed to perform such procedures.

This was a joint investigation between the FDA Office of Criminal Investigations and U.S. Immigration and Customs Enforcement (ICE). Both the Washington State Department of Health and the Washington State Department of Licensing assisted with the investigation.

The case is being prosecuted by Assistant United States Attorneys Kathryn Warma and Mary K. Dimke

For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney's Office, at (206) 553-4110 or Emily.Langlie@USDOJ.Gov.

Posted by Lucas A. Ferrara, Esq. at 3:00 PM | Permalink | TrackBacks (0) | Comments (0)

FTC Lodges Contempt Charge Against BlueHippo

 

Company Pocketed More Than $15 Million From Consumers Last Year, But Almost None Received a Computer

 

The Federal Trade Commission has asked a federal court to issue a contempt order against BlueHippo, a company that collected more than $15 million from consumers based on claims that it would finance their purchases of new computers, but delivered neither the financing nor the financed computers, in violation of a 2008 court order. The FTC alleged that less than one percent of consumers who signed up with BlueHippo received the financed computers they applied for, and undisclosed conditions to redeem "store credits" were rigged to discourage consumers from using them.

In a contempt motion lodged with the court today, the FTC charged that BlueHippo has flouted a settlement reached with the agency last year, continuing to deceive thousands of financially strapped consumers with phony promises that it would help them purchase a computer even if they have credit problems. The FTC also is asking the court to order BlueHippo to compensate injured consumers and bar BlueHippo from similar conduct in the future.

"Years of broken promises by BlueHippo have left consumers seeing red," said FTC Chairman Jon Leibowitz. "We're putting companies like this on notice: If you mistreat consumers and thumb your nose at the courts, we will hold you accountable."

The FTC reached a settlement with Baltimore-based BlueHippo in April 2008 that required the company to pay $3.5 million for consumer redress and barred the defendants from further deceiving customers. According to the FTC's 2008 complaint, BlueHippo Funding, LLC and affiliate BlueHippo Capital, LLC offered to extend credit to consumers to finance purchases of personal computers and other consumer electronics with down payments of $99 to $124, and a year of weekly or bi-weekly payments ranging from $36 to $88. BlueHippo promised to deliver the product once the consumer made 13 weekly payments. But most consumers did not receive the computers they ordered in the time promised, even after they had made 13 weeks of payments, the Commission alleged. The Commission charged that BlueHippo's marketing tactics were deceptive, and violated the FTC Act and other federal credit statutes.

Even after this settlement order was entered by the court, BlueHippo continued to deceive consumers, according to the FTC. The company aggressively marketed itself as a computer finance company and spent the rest of 2008 signing up customers and taking their money, but failing to provide them with financed computers. The FTC's contempt motion alleges that between April and December of 2008, more than 35,000 customers contracted for BlueHippo's computer financing deal. But the company provided, at most, a single financed computer, failing to provide financed computers even for 2,477 customers who managed to meet the companies' conditions. Complaints about the company poured into the Better Business Bureau. On top of all that, BlueHippo failed to submit a report to the FTC showing how it was complying with the settlement, as required by the order.

Finally, in April, 2009, after the FTC notified the court that BlueHippo was violating the settlement, the company began ordering thousands of computers. Even so, the FTC alleges that BlueHippo failed to order computers for 1,015 of the 2,477 consumers who had qualified for financing by making 13 consecutive payments and completing the required paperwork. For the 1,462 consumers who finally received a computer, BlueHippo did not even order - let alone ship - the computers within the three- to four-week time frame the company had advertised. On average, it took about six months between the time these consumers qualified for their computers and the time BlueHippo ordered the machines, according to the FTC's contempt motion.

The FTC's contempt motion also charged that BlueHippo failed to disclose key aspects of its refund policy. In particular, the company promised that while consumers who canceled their order after seven days could not obtain cash refunds, they could get "store credit," which could be used to buy desktop computers, laptops, monitors, software, and televisions. But it failed to tell consumers that they would have to send a money order to cover undisclosed shipping and handling fees, as well as taxes, even if they had more than enough store credit to cover these costs - and that they could only order one item at a time.

The contempt motion against defendants BlueHippo Funding, LLC; BlueHippo Capital, LLC; and Joseph Rensin was filed in the U.S. District Court for the Southern District of New York.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.

Posted by Lucas A. Ferrara, Esq. at 9:00 AM | Permalink | TrackBacks (0) | Comments (0)

ATTORNEY GENERAL CUOMO ANNOUNCES COURT DECISION REQUIRING BOGUS ANTIQUE ARTIFACT OPERATION TO PAY PENALTIES AND RESTITUTION

Mircea Veleanu, owner of Objets D'Arts Uniques, lied about quality and value of artifacts; refused to give refunds after items were proven to be fake ~Cuomo urges customers to contact his office if they suspect items are fake  

POUGHKEEPSIE, N.Y. (November 10, 2009) - Attorney General Andrew M. Cuomo today announced that his office has won a lawsuit requiring a Newburgh resident who ran an online fraudulent antique artifact operation to pay restitution to those he defrauded.

As a result of a lawsuit filed by Attorney General Cuomo, Dutchess County Acting Supreme Court Justice Hon. Thomas J. Dolan issued a decision and order requiring restitution for any consumers he defrauded, plus penalties of up to $5,000 per violation and costs to the state. The order also permanently bars Veleanu from selling jade artifacts unless they can be verified as authentic.

Cuomo continues to urge consumers to contact his Poughkeepsie Regional Office at 845-485-3900 if they purchased art or artifacts from Veleanu that they suspect are knockoffs or fake.

"He called himself an antiques dealer but he really dealt in lies and deceit," said Attorney General Cuomo. "Any business that misrepresents products that it sells will be held accountable."

An investigation by Cuomo's office determined that Mircea Veleanu sold artifacts online claiming that they contained high quality and expensive jade, when they actually were made of quartz or glass. He then refused to provide refunds or acknowledge that the pieces were fake. Veleanu, a retired doctor and collector of antique jade carvings and other oriental artifacts, portrayed himself as an expert on such wares and has authored three books devoted to his collection. Since at least 2001, Veleanu began selling items from his collection, including jade carvings, under the business name of "Objets D'Arts Uniques." In 2002, he began selling items through eBay and GoAntiques.com.

In 2007, Veleanu, of Susan Drive in Newburgh and Heritage Hills in Somers, sold two strings of jade Tibetan Prayer Beads (malas) to a consumer, one of which he falsely claimed was made of "fei tsui" jade, an extremely valuable and high quality type of jade. Over the next two years, he convinced the same consumer to purchase seven malas for a total price of $12,365. Veleanu continually assured the consumer that the jade was pure and of the highest quality. He also sold two calligraphy brushes for $2,400 and falsely described them as containing high-quality jadeite beads.

Upon closer inspection after purchase, the consumer saw that the beads contained bubbles indicating that they were actually made of glass and not jade. The consumer then subjected all of the jade malas she purchased from Veleanu to the American Gemological Trade Association (AGTA), which determined that they were all made of dyed quartz instead of jade. Veleanu refused to provide refunds from the consumer, rejected the labs' results and continued to insist that the items were indeed made of authentic jade.

Under the decision, Veleanu is permanently barred from advertising and selling jade items unless it has first been tested and confirmed as legitimate by the American Gemological Trade Association Testing Center or a lab of equal reputation. Veleanu must also provide a complete accounting of all of his customers and pay full restitution to those he defrauded.

The Attorney General thanked the Gemological Institute of America for assisting in the investigation.

The case was handled by Assistant Attorney General Nicholas Garin under the supervision of Assistant Attorney General-in-Charge of the Poughkeepsie Regional Office Vincent Bradley and Deputy Attorney General for Regional Affairs J. David Sampson. Investigator Judy Koerber assisted in the case.

Posted by Lucas A. Ferrara, Esq. at 1:00 PM | Permalink | TrackBacks (0) | Comments (0)

 

LET'S KEEP FRAUD AND CORRUPTION OUT OF PUBLIC HOUSING

In the last three months alone the City's Department of Investigation (DOI) announced the arrests of 11 Public Housing and Section 8 residents who were caught by a DOI investigation and charged with defrauding the Housing Authority of more then $175,000 by not reporting all of their household income. DOI also arrested a Staten Island development resident who failed to report on her Affidavits of Income that she owned her own home in Staten Island that she rented to her own tenants. Three applicants for NYCHA Section 8 housing were arrested by DOI and charged with submitting false documents with their applications in an attempt to jump the waiting list.

Fraud against NYCHA hurts all of us. As DOI Commissioner Rose Gill Hearn said, "Concealing income to obtain publicly funded housing subsidies is a foolish act. It's also a crime that saps the City's limited supply of housing funds intended for those households most in need." Commissioner Gill Hearn has made it clear that, "Housing fraud is a crime that deprives needy families of limited subsidies and will result in arrest and prosecution."

DOI's Office of the Inspector General for NYCHA investigates corruption, criminal activity, conflicts of interest, and unethical conduct by NYCHA officers, employees, residents, and others who do business with, or receive funds from NYCHA.

Maybe you know someone who lives in public housing but doesn't report their income, or someone who rents or sublets their apartment. DOI also investigates employee fraud and misconduct. If you have seen a NYCHA employee steal time, money or resources from NYCHA, you should report this information to the Inspector General because money is being wasted that could be put to work where it belongs: in your NYCHA development where it can be used for play areas, community centers, landscaping, after-school programs, activities for seniors or hundreds of other things. All residents are encouraged to report fraud, waste and serious mismanagement that occur on NYCHA property, to ensure that your rent money and taxpayer dollars are being well spent.

There are several ways to contact NYCHA's Office of the Inspector General to make a report: You can call (212) 306-3355; Fax: (212) 306-6484; send an email to ig@nycha.nyc.gov; or fill out a Department of Investigation online complaint form at www.nyc.gov/html/doi. You can also send a complaint by mail to:

City of New York
Department of Investigation
New York City Housing Authority
Office of the Inspector General
250 Broadway, 28th Floor New York, NY 10007
Attn: Complaints

When making a complaint try to give as much information as you have. Who was involved? What happened? When did it happen? Where did it happen? Why was it done? It's best to report incidences of fraud immediately while the facts are still fresh in your mind. All reports will be kept confidential.

The NYCHA Office of the Inspector General works diligently to protect the identities of complainants, or individuals who make reports. You may also ask to be kept anonymous, but by disclosing your identity to the OIG, you can help expedite the pending case by making it easier for the OIG to contact you with follow-up questions. Let's work together to keep fraud and corruption out of public housing.

Posted by Lucas A. Ferrara, Esq. at 11:00 AM | Permalink | TrackBacks (0) | Comments (0)

FTC Charges 'Credit Card' Companies with Deceptive Marketing

The Federal Trade Commission has filed a complaint in federal court alleging that a catalog credit card operation deceptively marketed its card, failed to honor its refund policy, and charged up-front fees for a guaranteed line of credit. The defendants, who charged consumers hundreds of dollars in fees for the card, voluntarily agreed to an order that prohibits the practices alleged in the complaint pending trial. The FTC seeks to permanently stop the unlawful practices and make the defendants provide refunds to consumers.

According to the FTC's complaint, in mailers sent to consumers with credit problems, the defendants stated that consumers could "build" their credit by using a "Pre-Approved" "Platinum-level" credit card with a "GUARANTEED" $7,500 credit line and a cash advance benefit. Although the card appeared to be a regular credit card, it could be used only to purchase products from the defendants' catalog, and only for part of the product purchase price. The defendants debited from consumers' bank accounts 30 percent of each purchase plus shipping costs for products sold at greatly inflated prices. Consumers weren't adequately informed that a 30 percent down payment would be required, that $397 in fees ($79 processing fee, $120 activation fee, $198 annual fee) also would be debited from their bank accounts, that the "cash advance" was really an opportunity to apply for a payday loan from a third-party lender, and that card users could not "build" their credit because their payment history was not reported to credit reporting agencies.

The defendants offered to refund the $120 fee to consumers who returned the card and catalog within 30 days, but the defendants often failed to deliver the catalog within the refund period, according to the complaint. Disclosures in the mailers were confusing, contradictory, out of context, and buried in pages of fine print. The defendants allegedly withheld details until consumers provided their bank account number, and then revealed as little information as possible. Disclosures about the terms and conditions, such as how fees are paid, did not correct the false impression left by the defendants, the FTC alleges.

The defendants are charged with violating the FTC Act and the FTC's Telemarketing Sales Rule (TSR) by falsely representing that the card could be used to fully finance purchases; that it would provide access to a no-fee, low cost, or guaranteed cash advance benefit; and that consumers could improve their credit ratings by using the card. They also failed to disclose that they would debit from consumers' bank accounts the advance fees, a non-refundable annual fee, and 30 percent of a product's price plus shipping costs. In addition, the defendants falsely claimed that they would refund the $120 activation fee to consumers who returned the card and catalog in timely fashion. The defendants also allegedly violated the TSR by charging an advance fee for a guaranteed extension of credit.

The defendants are Low Pay, Inc., doing business as LPC Inc., lowpaycard.com, and mylpcard.com; LP Capital Holdings, Inc.; Century Luxury, Inc.; the Mardan Afrasiabi Living Trust; Mardan M. Afrasiabi; and Ramin Rahimi. The Commission vote to authorize staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Central District of Oregon.

The FTC acknowledges the Oregon Department of Justice and Oregon Attorney General John Kroger for their substantial assistance with the FTC's investigation.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.

Posted by Lucas A. Ferrara, Esq. at 11:00 AM | Permalink | TrackBacks (0) | Comments (0)

Yesterday, Robert Knakal (of Massey Knakal Realty Services) posted this article to his blog: 

How Green are the Economy's Green Shoots?

November 1, 2009

This past Thursday, the government announced that our Gross Domestic Product - a broad measure of the economy that sums up all the goods and services produced in the U.S. - increased at a rate of 3.5% during the third quarter of 2009. The Dow Jones Industrial Average has been hovering around 10,000 and housing market indexes have been positive for months. These statistics might lead you to think that our economy was starting to briskly emerge from the recession, however,  let's take a closer look at each of these green shoots.

During the third quarter of 2009, GDP did, indeed, expand after shrinking for four consecutive quarters, indicating an apparent end to the worst recession since World War II. The expansion was 3.5%, however, a majority of the increase was related to vehicle purchases and residential construction, both stimulated by government support. 2.2% of the increase was due to these two sectors and an additional 0.6% was attributed to government spending.

Additionally, inventories had been stripped to the bone and are now being rebuilt. In the third quarter, companies dumped inventory, though less aggressively than during the previous three months. By the math of GDP accounting, merely slowing down inventory liquidation will boost growth.

The most surprising result was the pace of consumer spending growth, although a significant portion of this appears to have been borrowed from the future. Consumers provided nearly two-thirds of the GDP growth with auto sales and parts alone adding 1% to the total. The cash-for-clunkers program stimulated significant increases in July and August sales but activity crashed in September after the program expired as demand was accelerated from future months.

The first time homebuyer's credit has prompted residential investment to increase handsomely. Private residential investment, of which home building is a large component, surged 23.4%, the first increase in 14 quarters. This accounted for half a percentage point of GDP growth. We will look at this credit in more depth when we discuss the housing market.

Much of the growth relies on government spending or incentive programs which are either expired or expiring. Therefore, it is unclear if consumers and businesses have regained the strength to propel the economy on their own. Businesses remain cautious and American households are still burdened by mountains of debt, two factors that have economists predicting growth will slow considerably in the coming months.

The Dow Jones Industrial Average has closed near 10,000 for a couple of weeks as a healthy majority of firms have exceeded earnings expectations recently. Unfortunately, these earnings are the result of companies cutting jobs and working hours and squeezing costs mercilessly.

While 73% of firms beat earnings expectations, 58% had worse than expected revenue. High unemployment has created significant slack in the economy with tremendous excess capacity. Productivity has increased at a rate of 6.4% as employers are squeezing more work out of exisitng workers.  It is very typical to see productivity increases as an economy emerges from recession as firms wait until the last possible moment to begin rehiring.

These favorable earnings are, unfortunately,  not sustainable without revenue growth as there is only so much overhead that companies can eliminate.

With regard to the positive news coming out of the housing sector, most in the media point to the S & P Case Shiller Index. This index has seen strong gains for five months running. Unfortunately, many economists discount the accuracy of the index as it only tracks 20 markets, representing only approximately 38% of all homes in the U.S.  It is thought that this index overshoots reality both on the upside and the downside.

While the housing numbers appear positive, economists warn not to make too much of them because low prices and low mortgage rates, along with the tax credit, have spurred a home buying bonanza, at least in the low end of the market. Roughly one-third of home resales are foreclosures or short sales, where the mortgage exceeds the sales price.

The $8,000 first time homebuyer credit has catalyzed much of the activity in the sector and there is good reason for this. The average home price in the U.S. is $178,400. Given FHA's 3.5% downpayment requirement (which amounts to $6,244 for the average home) the government is, essentially, paying people to buy a home.

This program has been ripe with fraud as is often the case with government run programs, particularly those with "refundable" credits that guarantee that claimants will get cash back even if they paid no taxes. A lack of documentation requirements make this program a layup for scammers ( You really couldn't even make this stuff up!).

The Treasury tax-oversight office said at least 19,000 filers who hadn't purchased homes claimed $139 million in tax credits and were reimbursed. Officials have found an additional 74,000 tax credit claims, valued at $500 million, where evidence of previous homeownership could make their claims invalid. More than 500 people under the age of 18, including a 4-year-old child, also had their names on applications for the credit which has no minimum age requirement. Most of the claims involving children were made by parents who purchased homes but would not qualify for the credit because their incomes were too high.

These problems show the dangers in creating refundable tax credits that give money to filers even if they don't owe any taxes. The Internal Revenue Service and Justice Department are investigating more than 100 suspected criminal schemes involving the credit. The IRS is conducting more than 100,000 examinations that could require filers to give back the credit and pay civil penalties.

This program was set to expire at the end of November, so naturally given its record of abuse, Congress has extended and expanded the program. Not only is the program extended into 2010 but now existing homeowners, who have owned their present home for at least 5 years, can qualify for a $6,500 credit in the event of a new purchase.

So let's recap the housing situation: 1) the government is providing tax credits to buyers through which buyers are "paid" to purchase a house; 2) there are no documentation requirements for the reciepients of the credit; 3) the government guarantees 92% of all single family mortages through Fannie, Freddie or FHA; 4) the government purchases most of those mortgages. Does everyone on Capitol Hill have amnesia?

While the credit seems to have boosted home sales, many of those sales would have happened anyway and have merely been stolen from the future. Meanwhile, the credit continues to distort the housing market and delays the process of home prices achieving a natural bottom which would serve as the basis for a fundamentally sound recovery.

There has only been modest growth in business investment which reveals how wary companies are about taking new risks or committing to expensive projects or new job creation in the current political and economic climate. The fiscal stimulus has pounded the federal balance sheet. With a deficit of $1.4 trillion in 2009, and $9 trillion more predicted over the next decade, every investor and business in America can see a gigantic tax bill coming right at them. The House health-care bill, which was released last week, takes another major wack at the job creators who own small businesses. The uncertainty of the Washington policy outlook is, no doubt, putting a significant crimp on future investment plans.

The simple truth is that without a recovery in the job market, consumers will not be able to carry the expansion for long and real growth is just an illusion. I guess it was heartening when, last week, after the recession has been with us for 22 months, Nancy Pelosi finally said the the focus has to be on job creation. Washington's current policy makers are growing increasingly concerned about the jobless rate and the looming mid-term elections in 2010. They should, however, remember that the best way to nurture an expansion isn't to feed it recklessly with easy money and more stimulus in order to meet an election timetable. Let the economy's natural animal spirits revive at their own pace.

We are certainly in a better place than we were one year ago, but we still have a long way to go and should not be misled by data that inaccurately reflects reality.

Mr. Knakal is the Chairman and Founding Partner of Massey Knakal Realty Services in New York City and has brokered the sale of over 1,000 properties in his career.

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (0)

WOMAN CHARGED IN WEBSITE DRUG SCHEME

LAS VEGAS - - A Las Vegas woman was arrested this morning [Monday, September 21, 2009] on federal fraud charges for falsely advertising and distributing on her website an "herbal" alternative to street drugs which was actually an active ingredient in cough syrup and a known drug of abuse among teenagers and young adults, announced Greg Brower, United States Attorney for the District of Nevada. Yamila Abraham, 34, was arrested this morning at her residence in Las Vegas, and is scheduled to appear at 3:00 p.m. today before U.S. Magistrate Judge Lawrence R. Leavitt. Abraham is charged in a criminal Indictment with seven counts of mail fraud, one count of misbranding a drug, one count of introducing goods into U.S. commerce by means of false statements, and criminal forfeiture. From about January 2004 to August 2006, Abraham allegedly operated a website called, www.Pleasureherbs.com, which falsely and fraudulently offered for sale "herbal" alternatives to recreational street drugs, including a product known as "Snurf." Abraham represented that "Snurf" is "the long awaited pill form of 10X extractions of Fevizia, Palenzia and De la Amazon. Each tablet contains 500 mg of these herbal extractions per pill." In reality, "Snurf" contains no herbal supplements, but rather exclusively contains dextromethorphan hydrobromide (DXM), which is a stimulant and the active ingredient in over-the-counter cough suppressants. The amounts of DXM in "Snurf" far exceeded the FDA's recommended dosage for cough suppression. The Indictment alleges that the labeling of the "Snurf" was false and misleading and did not bear adequate directions for use or adequate warnings against use. Abraham purchased DXM in bulk from sources around the country and caused it to be repackaged in capsules for sale as "Snurf." The indictment alleges that on May 25, 2005, Abraham fraudulently entered into U.S. commerce approximately 20,000 tablets containing DXM by stating that the packaged contained 20,000 tablets of vitamin B-12. The indictment further alleges that between November 22, 2005, and May 1, 2006, Abraham mailed seven packages of "Snurf," from Las Vegas, Nevada, to several locations in California, and to Springfield, Illinois, and Indianapolis, Indiana. If convicted, Abraham faces up to 20 years in prison and a $250,000 fine on each mail fraud count, up to one year in prison and a $250,000 fine on the drug misbranding count, and up to two years in prison and a $250,000 fine on the introduction of goods into commerce by false statements count. Additionally, if convicted, the Government seeks forfeiture of properties of the defendant derived from the proceeds of the crimes of up to $186,680, as well as 20,000 tablets of DXM and any equipment used by the defendant to make counterfeit drugs. This case is being investigated by the FDA Office of Criminal Investigations, U.S. Immigration and Customs Enforcement, and the U.S. Postal Inspection Service. The case is being prosecuted by Assistant U.S. Attorney Crane M. Pomerantz. The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt. # # # #

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FOR IMMEDIATE RELEASE JUSTICE DEPARTMENT ANNOUNCES LARGEST HEALTH CARE FRAUD SETTLEMENT IN ITS HISTORY

Pfizer To Pay $2.3 Billion For Fraudulent Marketing

WASHINGTON - American pharmaceutical giant Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. (hereinafter together "Pfizer") have agreed to pay $2.3 billion, the largest health care fraud settlement in the history of the Department of Justice, to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceutical products, the Justice Department announced today.

Pharmacia & Upjohn Company has agreed to plead guilty to a felony violation of the Food, Drug and Cosmetic Act for misbranding Bextra with the intent to defraud or mislead. Bextra is an anti-inflammatory drug that Pfizer pulled from the market in 2005. Under the provisions of the Food, Drug and Cosmetic Act, a company must specify the intended uses of a product in its new drug application to FDA. Once approved, the drug may not be marketed or promoted for so-called "off-label" uses - i.e., any use not specified in an application and approved by FDA. Pfizer promoted the sale of Bextra for several uses and dosages that the FDA specifically declined to approve due to safety concerns. The company will pay a criminal fine of $1.195 billion, the largest criminal fine ever imposed in the United States for any matter. Pharmacia & Upjohn will also forfeit $105 million, for a total criminal resolution of $1.3 billion.

In addition, Pfizer has agreed to pay $1 billion to resolve allegations under the civil False Claims Act that the company illegally promoted four drugs - Bextra; Geodon, an anti-psychotic drug; Zyvox, an antibiotic; and Lyrica, an anti-epileptic drug - and caused false claims to be submitted to government health care programs for uses that were not medically accepted indications and therefore not covered by those programs. The civil settlement also resolves allegations that Pfizer paid kickbacks to health care providers to induce them to prescribe these, as well as other, drugs. The federal share of the civil settlement is $668,514,830 and the state Medicaid share of the civil settlement is $331,485,170. This is the largest civil fraud settlement in history against a pharmaceutical company.

As part of the settlement, Pfizer also has agreed to enter into an expansive corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services. That agreement provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to this matter.

Whistleblower lawsuits filed under the qui tam provisions of the False Claims Act that are pending in the District of Massachusetts, the Eastern District of Pennsylvania and the Eastern District of Kentucky triggered this investigation. As a part of today's resolution, six whistleblowers will receive payments totaling more than $102 million from the federal share of the civil recovery.

The U.S. Attorney's offices for the District of Massachusetts, the Eastern District of Pennsylvania, and the Eastern District of Kentucky, and the Civil Division of the Department of Justice handled these cases. The U.S. Attorney's Office for the District of Massachusetts led the criminal investigation of Bextra. The investigation was conducted by the Office of Inspector General for the Department of Health and Human Services (HHS), the FBI, the Defense Criminal Investigative Service (DCIS), the Office of Criminal Investigations for the Food and Drug Administration (FDA), the Veterans' Administration's (VA) Office of Criminal Investigations, the Office of the Inspector General for the Office of Personnel Management (OPM), the Office of the Inspector General for the United States Postal Service (USPS), the National Association of Medicaid Fraud Control Units and the offices of various state Attorneys General.

"Today's landmark settlement is an example of the Department of Justice's ongoing and intensive efforts to protect the American public and recover funds for the federal treasury and the public from those who seek to earn a profit through fraud. It shows one of the many ways in which federal government, in partnership with its state and local allies, can help the American people at a time when budgets are tight and health care costs are increasing," said Associate Attorney General Tom Perrelli. "This settlement is a testament to the type of broad, coordinated effort among federal agencies and with our state and local partners that is at the core of the Department of Justice's approach to law enforcement."

"This historic settlement will return nearly $1 billion to Medicare, Medicaid, and other government insurance programs, securing their future for the Americans who depend on these programs," said Kathleen Sebelius, Secretary of Department of Health and Human Services. "The Department of Health and Human Services will continue to seek opportunities to work with its government partners to prosecute fraud wherever we can find it. But we will also look for new ways to prevent fraud before it happens. Health care is too important to let a single dollar go to waste."

"Illegal conduct and fraud by pharmaceutical companies puts the public health at risk, corrupts medical decisions by health care providers, and costs the government billions of dollars," said Tony West, Assistant Attorney General for the Civil Division. "This civil settlement and plea agreement by Pfizer represent yet another example of what penalties will be faced when a pharmaceutical company puts profits ahead of patient welfare."

"The size and seriousness of this resolution, including the huge criminal fine of $1.3 billion, reflect the seriousness and scope of Pfizer's crimes," said Mike Loucks, acting U.S. Attorney for the District of Massachusetts. "Pfizer violated the law over an extensive time period. Furthermore, at the very same time Pfizer was in our office negotiating and resolving the allegations of criminal conduct by its then newly acquired subsidiary, Warner-Lambert, Pfizer was itself in its other operations violating those very same laws. Today's enormous fine demonstrates that such blatant and continued disregard of the law will not be tolerated."

"Although these types of investigations are often long and complicated and require many resources to achieve positive results, the FBI will not be deterred from continuing to ensure that pharmaceutical companies conduct business in a lawful manner," said Kevin Perkins, FBI Assistant Director, Criminal Investigative Division.

"This resolution protects the FDA in its vital mission of ensuring that drugs are safe and effective. When manufacturers undermine the FDA's rules, they interfere with a doctor's judgment and can put patient health at risk," commented Michael L. Levy, U.S. Attorney for the Eastern District of Pennsylvania. "The public trusts companies to market their drugs for uses that FDA has approved, and trusts that doctors are using independent judgment. Federal health dollars should only be spent on treatment decisions untainted by misinformation from manufacturers concerned with the bottom line."

"This settlement demonstrates the ongoing efforts to pursue violations of the False Claims Act and recover taxpayer dollars for the Medicare and Medicaid programs," noted Jim Zerhusen, U.S. Attorney for the Eastern District of Kentucky.

"This historic settlement emphasizes the government's commitment to corporate and individual accountability and to transparency throughout the pharmaceutical industry," said Daniel R. Levinson, Inspector General of the United States Department of Health and Human Services. "The corporate integrity agreement requires senior Pfizer executives and board members to complete annual compliance certifications and opens Pfizer to more public scrutiny by requiring it to make detailed disclosures on its Web site. We expect this agreement to increase integrity in the marketing of pharmaceuticals."

"The off-label promotion of pharmaceutical drugs by Pfizer significantly impacted the integrity of TRICARE, the Department of Defense's healthcare system," said Sharon Woods, Director, Defense Criminal Investigative Service. "This illegal activity increases patients' costs, threatens their safety and negatively affects the delivery of healthcare services to the over nine million military members, retirees and their families who rely on this system. Today's charges and settlement demonstrate the ongoing commitment of the Defense Criminal Investigative Service and its law enforcement partners to investigate and prosecute those that abuse the government's healthcare programs at the expense of the taxpayers and patients."

"Federal employees deserve health care providers and suppliers, including drug manufacturers, that meet the highest standards of ethical and professional behavior," said Patrick E. McFarland, Inspector General of the U.S. Office of Personnel Management. "Today's settlement reminds the pharmaceutical industry that it must observe those standards and reflects the commitment of federal law enforcement organizations to pursue improper and illegal conduct that places health care consumers at risk."

"Health care fraud has a significant financial impact on the Postal Service. This case alone impacted more than 10,000 postal employees on workers' compensation who were treated with these drugs," said Joseph Finn, Special Agent in Charge for the Postal Service's Office of Inspector General. "Last year the Postal Service paid more than $1 billion in workers' compensation benefits to postal employees injured on the job."

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In the Matter of Felton R. v Gloria P., Felton R. no longer wanted to be held to his paternal responsibilities. (Twelve years earlier, Felton acknowledged paternity even though he knew he wasn't the child's biological father.)

After the New York County Family Court denied his request, Felton appealed to the Appellate Division, First Department.

The AD1 thought Felton had waited too long and couldn't back out as the kid's dad because he couldn't show that his initial acknowledgment was fraudulently procured, made under duress, or, a mistake of fact.

Walk on, walk on, walk on.

To view a copy of the Appellate Division's decision, please use this link: Matter of Felton R. v Gloria P.

 

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In Holme v. Global Mins. & Metals Corp., James W. Holme wanted to enforce a 2006 money judgment he had secured against Global Minerals & Metals Corp.

Although back in 2000 the corporation had been stripped of its assets and was a depleted shell, the corporate officers allegedly continued operating the business by way of a different entity opened in 2003.

When the New York County Supreme Court denied the defendants' request to dismiss the case (which was based on theories of "de facto merger and alter-ego liability"), an appeal to the Appellate Division, First Department, followed.

Because his pleadings offered "considerable detail" as to possible fraudulent transfers and other alleged misconduct, the AD1 thought Holme's case warranted survival.

There's no place like Holme.

To view a copy of the Appellate Division's decision, please use this link: Holme v. Global Mins. & Metals Corp. 

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In Matter of Leff, the Departmental Disciplinary Committee for the First Judicial Department sought an order disbarring attorney Steven Leff.

Leff, who was admitted in 1988, was suspended for a three year period back in 2000 and never reapplied for reinstatement.

In 2008, he pled guilty to embezzlement -- a felony under federal law -- in a criminal case filed with the United State District Court of the Eastern District of New York.

Leff allegedly acted as "settlement agent" for several FDIC insured banks and apparently diverted proceeds from mortgage transactions to himself and his company. (Ultimately, more than $13 million in loan proceeds are thought to have been misdirected.)

In New York, conviction of a federal felony triggers automatic disbarment when the crime is "essentially similar" to a New York State felony. Since the offense matched New York's grand larceny felony, the Appellate Division, First Department, concurred with the Committee's recommendation and let Leff go.

There's nothing Leff.

To view a copy of the Appellate Division's decision, please use this link: Matter of Leff

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In Cheng v. Young, Show Lain Cheng, her ex-husband Ko-Cheng Cheng, Alan Young, and Nicholas Guzzone were each 25% shareholders in a corporation which owned real property. But in 1986, only Ko-Cheng, Young, and Guzzone signed a guaranty -- wherein they agreed to pay the balance due under an underlying note and mortgage if the corporation defaulted on payments.

Of course, the entity later defaulted, and the guarantors were found liable for a $2,678,612.72. Ko-Cheng, Young, and Guzzone eventually negotiated a release for $75,000, while Show Lain got stuck with paying $1,352,500.

When Show Lain attempted to recoup the monies from her fellow shareholders, she alleged breach of fiduciary duty, fraud, and asked the court to compel her former colleagues to comply with her discovery demands. (She also claimed that Young -- as her attorney -- had a duty to inform her of the group's settlement with the mortgagee and was obligated to ensure that she had a similar opportunity to enter into a favorable arrangement.)

When the Kings County Supreme Court rejected Show Lain's claims, she appealed to the Appellate Division, Second Department.

The AD2 thought Young didn't have a duty to inform Show Lain of the settlement because she wasn't a party to the guaranty, and therefore not subject to liability pursuant its terms.

Young's argument never got old!

To view a copy of the Appellate Division's decision, please use this link: Cheng v. Young

 

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In Third Lenox Terrace Assoc. v. Edwards, Third Lenox Terrace filed an eviction proceeding against Cynthia Edward, a rent-stabilized tenant.

It was undisputed Cynthia moved out of the unit around March of 1998, without telling the landlord. And while she continued to pay the rent -- by way of money orders -- and renewed her lease through October 2005, when the holdover was initiated Cynthia's sister, Linda, claimed "succession rights."

After the New York City Civil Court agreed with Linda and dismissed the case, the landlord appealed to the Appellate Term, First Department.

The AT1 found Linda wasn't entitled to remain in her sister's rent-stabilized unit as a regulated tenant as she hadn't contemporaneously lived in the apartment with her sister for the requisite time frame. (One year for senior citizens/disabled; 2 years for everyone else.)

The AT1 also thought the landlord had been prejudiced because the sisters "purposefully concealed" the fact that Cynthia no longer occupied the unit for some eight years.

There's no fooling the AT1.

For a copy of Appellate Term's decision, please use this link: Third Lenox Terrace Assoc. v. Edwards 

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In Estate of Saul Schneider v. Finmann, Saul Schneider supposedly transferred his life insurance policy from a limited liability partnership to himself, upon the advice of Victor Finmann P.C.

A year later, Schneider died and his estate representative sued Finmann for malpractice -- alleging the policy's transfer triggered an increased tax liability.

After the Nassau County Supreme Court dismissed the case, Schneider's representative appealed to the Appellate Division, Second Department, which held an attorney isn't liable to "third parties" for harm caused by professional negligence, unless there is "fraud, collusion, malicious acts or other special circumstances."

Because Schneider's estate wasn't in privity with Finmann, and none of the governing exceptions applied, the estate couldn't maintain the case.

The AD2 explained that, even when alive, Schneider wouldn't have had a claim because any alleged damage -- that is, any increase in estate tax liability -- could only occur after his death.

What a tangled web ....

To view a copy of the Appellate Division's decision, please use this link: Estate of Saul Schneider v. Finmann

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In Matter of Gazzara v. Commissioner of Labor, Nancy Gazzara applied for, and secured, unemployment benefits after she lost her job as an administrative assistant.

The New York State Department of Labor (DOL) later stopped the pay-outs, sought to recover payments made, and, assessed a penalty based on Gazzara's "willful" misrepresentation of her status. (Apparently, the woman hadn't disclosed she had started a new business.)

When the Unemployment Insurance Appeal Board refused to modify the DOL's determination, Gazzara took her case to the Appellate Division, Third Department.

Since she "stood to benefit" from her activities -- which consisted of creating a website, printing business cards and actively soliciting clients for a new business -- the AD3 was of the view Gazzara wasn't "unemployed." And, because the DOL had given her a booklet which advised her of an obligation to report such activities, the AD3 thought Gazzara "willfully misrepresented her status, even though such misrepresentation may have been unintentional."

Good golly, Gazzara got guzzled!

For a copy of the Appellate Division's decision, please use this link: Matter of Gazzara v. Commissioner of Labor

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In Kuiters v. Kukulka, Richard and Mary Kuiters -- and several other parties -- alleged David and Lizabeth Kukulka interfered with an easement which allowed "ingress and egress." Among other things, the Kuiters claimed: (i) interference with their use of the easement; (ii) a violation of a local zoning ordinance; and (iii) fraud.

When the Herkimer County Supreme Court denied the Kukulkas's request to dismiss the case, they appealed to the Appellate Division, Fourth Department.

Because the Kukulkas failed to prove they hadn't unreasonably interfered with the Kuiters' easement, the AD4 thought that part of the case needed to continue. However, since the Town of Webb granted the Kukulkas a variance to construct a dock, no violation of the local zoning ordinance could be established.

And, finally, because any alleged misrepresentations weren't made to the Kuiters, they couldn't  maintain a "fraud" claim.

Did the AD4 knock the wind out of someone's sails?

To download a copy of the Appellate Division's decision, please use this link: Kuiters v. Kukulka

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In Dank v. Sears Holding Mgt. Corp., Warren Dank filed suit because he believed Sears, a national retailer, broke a promise to match the price of any item offered for sale by a competing merchant.

Dank was looking to buy a flat-screen television and found another establishment offering a better deal. Dank then visited three different Sears stores and attempted to purchase the set at the competitor's lower number.

Two of the stores refused to match the price, claiming each manager had the discretion whether or not to do so.

When Dank purchased the set at the third Sears, supposedly for an extra $400, he sued the company in Nassau County Supreme Court.

When the retailer's request to dismiss the case was denied, it appealed to the Appellate Division, Second Department, which affirmed the lower court's determination. The AD2 was of the view Dank stated a common-law fraud claim as well as a basis for relief under New York's General Business Law.

Where it begins ... may be where it ends.

To download a copy of the Appellate Division's decision, please use this link: Dank v. Sears Holding Mgt. Corp. 

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In Bryant v. Damiano, Anne Bryant sued Charles Damiano for damages caused by the installation of an allegedly defective drainage system some 18 years prior to her lawsuit.

When the Rockland County Justice Court dismissed the case on "statute of limitations" grounds, Bryant appealed to the Appellate Term, Second Department.

The AT2 noted that a case against a contractor for "contract breach" or "fraud" must be filed within 6 years from the date the work was completed, or two years from the time Bryant learned of the fraud, or, with "reasonable diligence" could have uncovered the misconduct.

Bryant admitted that a year after Damiano completed the work, she detected a problem with the drain and hired someone to fix the system.

Since she was aware of the defect for some 16 years, she was "time-barred" from seeking relief.

No flushing that out any further.

To download a copy of the Appellate Term's decision, please use this link: Bryant v. Damiano

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In Bryant v. Bryant, after the Bronx County Surrogate's Court declared a deed of no force and effect, an appeal to the Appellate Division, First Department, followed.

George Henry Bryant proved by "clear and convincing" evidence that a property's conveyance to his brother, Dennis, was fraudulent.

Among other things, George's expert established the deed wasn't signed by the parties' mother. (It was also shown that the document wasn't legitimately executed, acknowledged and delivered.)

That no-good deed went punished.

To download a copy of the Appellate Division's decision, please use this link: Bryant v. Bryant

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In Matter of People of State of New York v. Applied Card System, Inc., former Attorney General Eliot Spitzer, pictured right, filed suit on behalf of New Yorkers who had been solicited for credit cards by Cross Country Bank (CCB).

CCB targeted "sub-prime credit market" consumers -- those who normally wouldn't "qualify for credit under traditional underwriting guidelines and principles."

The then Attorney General alleged that, in violation of New York law, CCB had "misrepresented the credit limits that sub-prime consumers could obtain and that it failed to disclose the effect that its origination and annual fees would have on the amount of initially available credit."

CCB informed customers they would be automatically pre-approved for a credit limit "up to" $2,500, when that number was often as low as $350. CCB supposedly told its customers there would be no late fees or collection calls, but later "clarified that such fees would be imposed and such calls made in certain instances."

There was also deceptive conduct relating to coverage for "death, disability, unemployment, or family leave," in a benefits program, and a "re-aging process" for "severely delinquent cardholders to bring their accounts current through a series of payments." (CCB failed to explain the late charges that would still accrue during that process.)

CCB countered it complied with the Federal Truth-in-Lending Act (TILA) and, according to the Fair Credit and Charge Card Disclosure Act of 1988 (FCCCDA), TILA overrode "any provision of the law of any State relating to the disclosure of information in any credit or charge card application," and preempted New York's Executive Law and Consumer Protection Act.

The Albany County Supreme Court found the Attorney General's claims weren't overridden by TILA and "permanently enjoined [CCB] from engaging in future fraud, deception, and false advertising." On appeal, the Appellate Division, Third Department, affirmed.

When the case reached the New York State Court of Appeals, that court found FCCCDA and TILA only overrode "those state laws that relate to 'disclosure of information,'" including annual percentage rates, annual fees, minimum finances and transaction charges, grace periods, late fees, over-the-limit fees, and the like. New York laws, on the other hand, addressed a credit card company's duty to "refrain from fraud, deception, and false advertising when communicating with New York customers."

Since the Attorney General's claims didn't "relate to the disclosure of credit information" but sought to address an "affirmative deception," our state's unfair trade practices law was unaffected by the federal statutes.

A lone dissenter, Judge Read, thought FCCCDA and TILA "set out comprehensive requirements and established a singular federal mechanism to add to or modify these requirements." Therefore, Read believed New York was prohibited from imposing any of its consumer protections laws on a nationwide industry.

You gotta give the court credit for that.

For a copy of the Court of Appeals' decision, please use this link: Matter of People of State of New York v. Applied Card System, Inc.

 

 

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In GMAC Mtge. Corp. v. Chan, when GMAC sought to foreclose on a property's mortgage the owners claimed the debt obligation and underlying conveyance weren't valid.

Although three brothers originally owned the parcel, one brother executed a deed conveying the property to himself (and another sibling), took out a mortgage with GMAC, filed for bankruptcy, and died. When GMAC tried to collect the sums due, the remaining brothers claimed their signatures on the loan documents and deed had been forged.

After the Richmond County Supreme Court decided a trial was necessary -- because of the possibility of fraudulent conduct -- the lender appealed to the Appellate Division, Second Department, which agreed with the lower court's determination and sent the case back for a hearing to determine the documents' validity.

Oh, brother!

To download a copy of the Appellate Division's decision, please use this link: GMAC Mtge. Corp. v. Chan

 

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This just in from the New York Times:

December 10, 2008

New Judge Is Charged With Campaign Finance Fraud

By John Eligon

 

Nora S. Anderson, Manhattan incoming Surrogate's Court judge, was indicted for campaign finance fraud.

Nora S. Anderson, who last month won the election for Manhattan Surrogate's Court judge, was indicted Wednesday on charges that she concealed the source of $250,000 deposited into her campaign account to make it appear as though the payments came from herself.

Prosecutors said that the money, in fact, came from Seth Rubenstein, Ms. Anderson's boss and campaign adviser, and he, too, was charged in the indictment.

Under election law, Ms. Anderson was allowed to contribute as much money as she wanted to her own campaign account. Outside donors were limited to $33,122.50 for the primary, prosecutors said.

In need of money to print and mail campaign materials, and to pay staff members to work for her on primary day, Ms. Anderson in August made two large deposits into her bank account.

The first, for $100,000, was posted to her campaign account on Aug. 20, one day after Ms. Anderson deposited a check from Mr. Rubenstein for the same amount into her personal bank account, prosecutors said.

The second payment, for $150,000, was wired into Ms. Anderson's campaign account on Aug. 26, the same day Mr. Rubenstein transferred that exact amount of money into Ms. Anderson's personal brokerage account.

"Here you have $250,000 coming from Rubenstein made to appear like it was coming from Anderson," said Robert M. Morgenthau, the Manhattan district attorney. "That's the crux of the case."

Both Ms. Anderson and Ms. Rubenstein face felony charges of offering a false instrument for filing and falsifying business records. If convicted, they could face up to four years in prison. They also face misdemeanor counts of knowingly and willfully violating contribution limits, punishable by up to a year in jail if convicted.

After riding a well-financed campaign to victory in the Democratic primary in September, Ms. Anderson came under suspicion when a $225,000 campaign loan from Mr. Rubenstein remained unpaid. Loans not paid by the primary date would be considered campaign contributions, prosecutors said.

But Ms. Anderson, 56, later repaid that original loan by liquidating her brokerage account and taking a loan from her retirement account, said Daniel J. Castleman, the chief assistant district attorney. She was not charged in connection with that initial loan, even though it could have been considered a contribution that exceeded limits.

Even as charges were pending against her, Ms. Anderson had been preparing to take the bench.

Ms. Anderson took the oath of office during a private ceremony last week, according to Janet Mishkin, the principal law clerk for Kristin Booth Glen, one of the two current Manhattan Surrogate's Court judges.

It is customary for judges to hold private swearing-in ceremonies before they take the bench. But their oath does not become official until Jan. 1, after it is filed with the city clerk's office.

If she takes the bench, Ms. Anderson will serve alongside Ms. Glen, who administered the oath. She would replace Renee R. Roth.

But whether Ms. Anderson takes the bench in January remains unclear, said her lawyer, Gus Newman.

That decision will depend on powers "above her and above me," he said.

Mr. Newman said his client would be vindicated and was qualified to serve as a judge on the Surrogate's Court.

"This case is not about any corruption or banality," he said. "It's about a claimed violation of election law. "Before these charges she had a totally unblemished reputation. When all the facts come out in the courtroom, it'll be clear that Nora's reputation will be restored and that she's totally innocent of any wrongdoing."

Mr. Rubenstein's lawyer, Frederick P. Hafetz, said his client did not commit a crime.

"Mr. Rubenstein acted totally within the election law," Mr. Hafetz said. "We are confident he will be vindicated at trial. He has a long and distinguished career at the bar. There are no charges of corruption whatsoever in this case."

Mr. Rubenstein and Ms. Anderson turned themselves in to the authorities on Wednesday morning. They were scheduled to be arraigned later in the afternoon.

Ms. Anderson is a lawyer in the firm headed by Mr. Rubenstein. For the past 10 years, she has only handled Surrogate's Court cases, Mr. Newman said. Ms. Anderson also spent about a combined five years as the deputy clerk and the head clerk of the Surrogate's Court in Manhattan.

Surrogate's courts have a notorious reputation for corruption because their judges -- as the handlers of wills, estates and guardianships -- have the power to appoint lawyers to lucrative families' cases.

In 2005, Michael H. Feinberg, a Surrogate's Court judge in Brooklyn, was removed after the State Commission on Judicial Conduct found that he had awarded $8.6 million in fees to a friend without verifying that the lawyer had done the work.

In July, The Daily News reported that the city was investigating Lee Holzman, the Bronx Surrogate's Court judge, for fees he awarded to politically connected lawyers.

# # #

To download a copy of the Times article, please use this link: Nora Anderson Charged with Fraud

# # # 

This story shouldn't come as a surprise to readers of our blog.

An opponent, John Reddy, made Anderson's questionable financing an issue in the Surrogate's campaign, but the topic didn't resonate with voters (or the New York Times -- which endorsed Anderson despite the brewing scandal).

To view Reddy's campaign literature on this subject, please use this link: The $250,000 Question

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In Birnbaum v. Misiano, Alan Birnbaum claimed his attorney, James Misiano, failed to provide adequate representation, and lacked the necessary "skill and knowledge," when the latter oversaw a loan given by Birnbaun to Michael Seeger.

While Seeger provided three watches as collateral for a $14,000 loan, and Misiano prepared the documents, the attorney supposedly failed to suggest the watches be appraised. Over the course of the next two years, Birnbaum made additional loans to Seeger and a fourth watch was given as collateral.

Birnbaum later discovered the loans were secured by "fictitious" bank accounts and the watches were worthless.

When the Nassau County Supreme Court granted Misiano's motion to dismiss the case filed against him, Birnbaum appealed to the Appellate Division, Second Department.

According to the AD2, Birnbaum needed to show Misiano's deficient legal representation caused "actual or ascertainable" damage. To establish entitlement to the dispute's dismissal, Misiano had to show Birnbaum was unable to "prove at least one element of the claim."

While Misiano claimed there was no evidence the debt was uncollectible and that Birnbaum had been damaged, the AD2 was of the opinion there were issues of fact which precluded the grant of relief in either side's favor. In other words, a formal hearing or trial was warranted.

We'll continue to watch this case.

To download a copy of the Appellate Division's decision, please use this link: Birnbaum v. Misiano   

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In Breen v. Law Offices of Bruce A. Barket, P.C., Eileen Breen alleged malpractice after allegedly losing a portion of her property in a divorce settlement.

Eileen and her ex-husband, George Breen, jointly owned two pieces of land in Connecticut, which had been "conveyed to them in a single deed."

The couple agreed George would purchase Eileen's interest in one parcel and the second would be sold and the proceeds shared.

George's attorney, Gerald Hecht, drew up a quitclaim deed which Eileen's attorney reviewed and Eileen signed. However, Eileen later learned that the property's description "resulted in the conveyance of both parcels to George Breen."

When the Nassau County Supreme Court refused to dismiss Breen's case against Hecht, an appeal to the Appellate Division, Second Department, ensued.

The AD2 didn't believe Hecht had participated in any "fraud, collusion, [or] malicious acts" against Eileen. He also couldn't be held liable for "professional negligence" because he wasn't in "privity" -- didn't have a relationship -- with her. Rather, Hecht had been hired by George and "never had any contact" with Eileen.

By George!

To download a copy of the Appellate Division's decision, please use this link: Breen v. Law Offices of Bruce A. Barket, P.C

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In Rufeh v. Schwartz, Mark Rufeh sued Seth Schwartz for allegedly libelous comments made about Rufeh's intentions to purchase property in Scarsdale, New York.

After Rufeh agreed to buy Schwartz's home, a dispute arose over the basement and the buyer sued the seller for breach of contract and to recover the downpayment.

Schwartz countered the deal was "part of a fraudulent scheme designed to induce Scarsdale School District officials to permit the children of his wife, [Patricia Rufeh], to enroll in Scarsdale Schools." According to Schwartz, Rufeh pretended to be "establishing residency in Scarsdale, when, in fact, [Rufeh] never intended to consummate the purchase."

When Rufeh filed another case to recover damages for libel and slander, the Westchester County Supreme Court dismissed the libel claim, but allowed the slander component to survive.

On appeal, the Appellate Division, Second Department, ended the case in its entirety. Rufeh needed to show "special damages," meaning "the loss of something economic or pecuniary," as a result of Schwartz's utterances. But, Rufeh failed to establish that he was "injured in his trade, business, or profession." The Court also believed the statements reflected on Rufeh "personally" rather than "professionally" and noted if Schwartz's statements were viewed as slanderous, then "virtually any accusation of fraud" would trigger liability.

(Shouldn't lawyers be able to make a living?)

To download a copy of the Appellate Division's decision, please use this link: Rufeh v. Schwartz  

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In Pludeman v. Northern Leasing Sys., Inc., small business owners from the states of Missouri, Texas, Washington, and New York, sued Northern Leasing after realizing they had been tricked into signing lease agreements for credit card terminals and other business equipment.

Kevin Pludeman, and others, alleged Northern had presented them with what they thought was a single page contract resting on a clip board when, in actuality, it was concealing three other pages.

While the first page seemingly covered all the pertinent contract terms, the other three pages contained "a no-cancellation clause, and no warranties clause, absolute liability for insurance obligations, a late charge clause, a provisions for attorney's fees and New York as the chosen forum."

Pludeman acknowledged that the initial page noted "page 1 of 4," but countered that "microprint" deprived customers of the ability to knowingly consent to the transaction's terms.

After Northern moved to dismiss the case, the New York County Supreme Court found the complaint sufficiently stated a fraud claim against the sales representatives responsible for the alleged fraud. On appeal, the Appellate Division, First Department, affirmed.

When the case reached the New York State Court of Appeals, our state's highest court agreed that Pludeman and the other business owners offered enough details about the alleged scam to state a "fraud" claim. While a state law -- CPLR 3016(b) -- requires specificity in such cases, the Court noted that the standard should not be "so strictly interpreted" when there is a great risk that a viable cause of action may be lost.

Since many of the disputed facts were "peculiarly within the knowledge" of Northern, the governing pleading requirement was satisfied "when the facts [were] sufficient to permit a reasonable inference" of fraud. As this was a long-term, "nation-wide scheme," the Court of Appeals found such an inference was warranted here.

A lone dissenter -- Judge Smith -- thought the business owners didn't meet the law's specificity requirement as they failed to raise "allegations specific to individual defendants." Additionally, since the individual salespeople were not Northern employees, Smith believed that company's officers couldn't be "blamed for any trickery in which the salespeople engaged."

Were these business owners trying to back-out of a bad deal?

Judge Smith certainly thought so.

Gotta give them credit for trying.

To download a copy of the Court of Appeals' decision, please use this link: Pludeman v. Northern Leasing Sys., Inc. 

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In Harry Casper Inc. v. Pines Associates, Harry Casper Inc. -- a limited partner of Pines Associates -- filed suit against Pines, Cornelius E. Sigety and Milton Koenigsberg alleging an option agreement to acquire certain real property was "the product of fraud."

When Koenigsberg and Sigety sought to change the case's location or venue to New York County pursuant to the agreement's "forum selection" clause, the Tompkins County Supreme Court denied their request and an appeal to the Appellate Division, Third Department, ensued.

Casper's conclusory allegation that Koenigsberg and Sigety committed fraud wasn't enough to invalidate the choice of venue provision. Such clauses are honored by courts unless a party can demonstrate the terms are "unreasonable and unjust or that the clause is invalid because of fraud or overreaching, such that a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging party would, for all practical purposes, be deprived of his or her day in court."

Since that standard wasn't met in this case, the AD3 reversed the lower court's determination and sent the parties packing.

Boo!

To download a copy of the Appellate Division's decision, please use this link: Harry Casper Inc. v. Pines Associates

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In Goldsmith v. Sotheby's Inc., Isabel Goldsmith owned a table which was stored at Sotheby's warehouse in England from 1985 to 1995, when it was "removed" from the company's facility.

Some four years later, in 1999, Goldsmith discovered the table was no longer in the auction house's possession. And, it took until 2000 for her to ascertain Sotheby's had sold the item several years prior.

When she filed suit, the New York County Supreme Court dismissed Goldsmith's case on the grounds her claim was "untimely" under the English Limitation Act, which requires that a "conversion" or theft claim be brought within 6 years. Goldsmith appealed, arguing that the action was timely under New York State law -- CPLR 214(3) -- because her case was brought within 3 years from the auction date.

While the Appellate Division, First Department, agreed English law should apply -- because "England has the greatest concern with the specific issue raised in the litigation" -- it found dismissal wasn't warranted because there were "issues of fact" concerning whether Goldsmith's claim was time-barred by law. (Since a theft was involved, the clock didn't run as of the date the item was stolen.)

Are you sold on that?

To download a copy of the Appellate Division's decision, please use this link: Goldsmith v. Sotheby's Inc 

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

In Kaufman v. Torkan, Ivan Kaufman supposedly agreed to give Kouros Torkan 90% of the financing needed to buy a disparate commercial property in Chelsea, in return for a first mortgage and Torkan's promise to withdraw his bid on a waterfront parcel. But, a year later, when the Chelsea deal didn't materialize, Torkan and his wife acquired the waterfront property.

When Kaufman later sued Torkan alleging fraud and breach of a "joint venture agreement," the Nassau County Supreme Court denied Torkan's dismissal request.

On appeal, the Appellate Division, Second Department, found Kaufman's "joint venture" claim unconvincing, because there was no provision in their alleged agreement for the sharing of profits and losses. Kaufman and Torkan were more like lender and borrower, rather than joint venturers, with Kaufman lacking any control over the waterfront property's development.

Kaufman's fraud claim also failed because it related to a breach of contract and wasn't "collateral or extraneous" to the parties' supposed agreement.

Will Kaufman profit from this loss?

To download a copy of the Appellate Division's decision, please use this link: Kaufman v. Torkan

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In Blay v. Blay, Jeffrey Blay challenged a court's award of certain property to his spouse.

In 1978, Jeffrey and his brother started-up a landscaping and snow-removal business, in which Jeffrey's brother supposedly contributed the initial capital. In 1989, the two brothers purchased 16-acres of land and renovated the house which was situated on the property. In June of 1992, Jeffrey married Tina and the couple built a studio on the property in order to teach karate classes. Some time later, when Tina expressed dissatisfaction with the marriage, Jeffrey dissolved the business, formed a corporation and a limited partnership and transferred the bulk of the enterprise's assets to his brother. In May of 2005, Tina filed for divorce.

After the Albany County Supreme Court granted relief in Tina's favor and awarded her (among other things) half of her husband's interest in the real estate owned with his brother, Jeffrey appealed.

The Appellate Division, Third Department, believed Jeffrey had transferred the property to the limited partnership only to deprive Tina of her "marital interests." Furthermore, funds used to pay the mortgage, acquire vehicles, and improve the property, "came from partnership funds earned during the marriage" and thus subject to distribution.

Although Tina wasn't entitled to Jeffrey's IRA account because there were no post-marriage contributions, a portion of the Keogh (business) retirement plan was found to comprise "marital property," and 7 years of $300 weekly maintenance payments were viewed as "excessive" and reduced to $200 per week, for 2 years.

Karate don't?

Arigatou gozaimasu!

To download a copy of the Appellate Division's decision, please use this link: Blay v. Blay   

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In Selinger Enterprises, Inc. v. Cassuto, Selinger Enterprises sought to recover a broker's commission from David Cassuto.

According to an exclusive broker's agreement Cassuto reached on behalf of Premium Capital Funding (PCF), Selinger was to receive a broker's commission if PCF leased space from a landlord Selinger introduced. A few days later, Selinger showed Cassuto a rental space and, several months later, while Cassuto was an employed with Franklin First Financial (FFF), the latter company ending up leasing the space.

FFF and Cassuto got sued when neither of them paid Selinger a commission. After the Nassau County Supreme Court denied the defendants' motion to dismiss the case, an appeal to the Appellate Division, Second Department, followed.

The AD2 found Selinger couldn't recover on a breach of contract theory because Cassuto signed the brokerage agreement on PCF's behalf (rather than in his personal capacity). The same was true for FFF, because that company didn't execute the underlying document. However, Selinger was permitted to maintain a fraud claim against the two defendants because the pleadings adequately alleged that Cassuto was acting under FFF's direction when he signed the brokerage agreement and that it was the defendants' intent to avoid paying Selinger a brokerage fee.

That got FFF'd up!

To download a copy of the Appellate Division's decision, please use this link: Selinger Enterprises, Inc. v. Cassuto

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In Wilder v. Tomaino, an 86-year-old woman filed suit to "cancel a deed and recover title" to a home in which she had lived for 58 years.

Janet Tomaino, acting with general power of attorney, conveyed the property to National Summit Grove, Inc. -- a corporation wholly owned by her and her husband. Eventually, the property was transferred to Tomaino and her husband, in their individual capacities.

When the Suffolk County Supreme Court granted the senior's motion for summary judgment, voiding the transfers, Tomaino appealed.

According to the Appellate Division, Second Department, the senior established the conveyances were invalid because Tomaino wasn't authorized to make gifts to herself or any "co-agents" and the transfers weren't in the senior's "best interests."

With all due respect, we have no further interest in this case.

To download a copy of the Appellate Division's decision, please use this link: Wilder v. Tomaino

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In People v. Bassoff, Esther Bassoff -- a "business broker" -- pled guilty to first degree fraud and third degree grand larceny. She also agreed to pay $175,000 in restitution and serve five years probation.

Although ordered to pay $40,000 prior to sentencing, Bassoff failed to honor that directive and the Nassau County Supreme Court sentenced her to six months in jail and five years probation. 

On appeal, the Appellate Division, Second Department, affirmed the outcome due to Bassoff's failure to honor a bargained-for-condition and her inability to show the failure to remit the payment was anything but willful.

Was that bad business judgment?

For a copy of the Appellate Division's decision, please use this link: People v. Bassoff

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In Marmelstein v. Kehillat New Hempstead: Rav Aron Jofen Community Synagogue, Adina Marmelstein felt that her Rabbi, Mordecai Tendler, breached a "fiduciary duty" owed to her.

Marmelstein was a congregant at Tendler's synagogue when Tendler began counseling her about various "life issues," which included her "desire to find a husband and have children."

Tendler supposedly told Marmelstein that he was the "Messiah" and that her only hope would be to engage in a "course of sexual therapy" with Tendler.

Marmelstein consented, and the two began a sexual relationship which lasted 3 1/2 years.

Tendler allegedly told Marmelstein that if she informed anyone about their relationship he would ban her from the synagogue community.

In a lawsuit filed with the New York County Supreme Court, Marmelstein sought damages predicated on fraud, breach of fiduciary duty, intentional and negligent infliction of emotional distress, and, also asserted a negligence claim against Kehillat New Hempstead (KNH) for hiring Tendler as Rabbi. When the Supreme Court dismissed all but the emotional distress and KNH related negligence allegations, the parties appealed to the Appellate Division, First Department, which ended the dispute in its entirety.

When the matter reached our state's highest court, the New York Court of Appeals concurred with the AD1's decision, since Marmelstein's "general allegations" against Tendler were insufficient to "demonstrate the existence of a true fiduciary relationship, " which is established when one person "is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation."

Merely stating that the two engaged in an illicit sexual relationship, or that Tendler resorted to "seductive conduct" with Marmelstein, wasn't enough to show Tendler assumed "de facto control and dominance" over her or that she became "uniquely vulnerable and incapable of self-protection."

While he may have deceived Marmelstein and acted immorally, because this was an "extended voluntary sexual affair between consenting adults," there were no legal consequences for the alleged misbehavior. 

Miss Marmelstein!  Miss Marmelstein! ... I could bust! To download a copy of the Court of Appeals' decision, please use this link: Marmelstein v. Kehillat New Hempstead: Rav Aron Jofen Community Synagogue 

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (1)

In Sareen v. Sareen, Vikas Sareen sued Reema Sareen -- his "estranged wife" -- to recover damages for fraud and intentional infliction of emotional distress.

Prior to their marriage, Reema supposedly told Vikas that she was a college graduate. After they were married, Vikas discovered that Reema had never earned a degree.

When the Queens County Supreme Court granted Reema's request to dismiss the case, Vikas appealed to the Appellate Division, Second Department.

The AD2 felt the fraud claim was unsupported since Vikas failed to establish he "justifiably relied" on Reema's representations when he decided to marry her. And since her conduct wasn't "extreme and outrageous," he was also unable to support an "intentional infliction of emotional distress" claim.

Isn't it always a matter of degrees?

To download a copy of the Appellate Division's decision, please use this link: Sareen v. Sareen

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In Hearst v. Hearst, John Randolph Hearst, Jr. fought to protect his family fortune and inheritance from his wife, Barbara Hearst, after she filed for divorce.

John and Barbara were married in 1990, the year after John suffered a stroke. When Barbara filed for divorce in 2004, John allegedly "discovered that Barbara, with the aid of their attorney [Leonard Ackerman] ... fraudulently deprived him of title and use of more than $20 million in real property and other investments."

Because of John's poor health, he entrusted Barbara with the day-to-day financial affairs and was often "induced to execute" documents. Eventually Barbara was "able to transfer assets controlled by [John] to a joint back account and then to several accounts solely controlled by her." At the time of the divorce, Barbara's accounts reflected $8 million and another $10 million in real estate owned by John prior to their marriage -- effectively disinheriting John's daughter and grandchildren.

After John filed suit against Barbara and attorney Ackerman for fraud, breach of fiduciary duty, conversion, and legal malpractice, the Suffolk County Supreme Court dismissed the case.

On appeal, the Appellate Division, Second Department, noted that to establish undue influence, "there must be evidence that [Barbara's] influence amounted to a moral coercion, which restrained independent action and destroyed free agency." The AD2 felt that there were unresolved questions as to whether "[John] and Barbara were in a confidential relationship and whether the various executed documents and transfers of property were procured through undue influence," resulting from John's "severely weakened condition [which] left him housebound." The AD2 also reinstated John's claim for legal malpractice against Ackerman, finding that if the lawyer represented both Hearsts, that was a "conflict of interest."

Who'll be the king of that castle?

To download a copy of the Appellate Division's decision, please use this link: Hearst v. Hearst  

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

  In Wells Fargo Bank v. Linzenberg, Wells Fargo foreclosed on a mortgage held by Karen Linzenberg who failed to answer the complaint and had a judgment issued against her on default.

Since a New York State law -- CPLR 5015(a)(1) -- allows a court to vacate a judgment when the defaulting party demonstrates a reasonable excuse for not answering or appearing and has a "meritorious" defense to the litigation, the Rockland County Supreme Court granted Linzenberg's request.

On its review of the record, the Appellate Division, Second Department, reinstated the foreclosure judgment, citing Linzenberg's failure to meet the law's requirements. (The AD2 found her allegations that the bank engaged in fraudulent activity to be "broad and unsubstantiated.")

That foreclosed that.

For a copy of the Appellate Division's decision, please use this link: Wells Fargo Bank v. Linzenberg 

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (3)

In Pizzo v. Goor, Janet Pizzo sued Rabbi Joel Goor on an agreement which provided Pizzo would be paid a sum of money upon the termination of the couple's "cohabitation relationship" which consisted of "companionship (both platonic and sexual)."

When the Bronx County Supreme Court granted the Rabbi's motion to dismiss the case, Pizzo appealed to the Appellate Division, First Department, which found the agreement unenforceable.

And, since her fraud, unjust enrichment, constructive trust, and intentional infliction of emotional distress claims all arose from that questionable "deal," they also couldn't survive.

We're just wondering who got the benefit of that bargain?

Anyone wanna take a slice?

To download a copy of the Appellate Division's decision, please use the following link: Pizzo v. Goor

Posted by Lucas A. Ferrara, Esq. at 3:25 PM | Permalink | TrackBacks (0) | Comments (1)

In Wilson v. Galicia Contr. & Restoration Corp., Lamont Wilson's left eye was seriously injured when he was supposedly hit by a falling piece of metal scaffolding that had been assembled by Safeway Steel Products.

Wilson withdrew his case against other defendants -- after an expert concluded the object in his eye was not scaffolding-related, but rather a lead air-gun pellet -- but continued his claim against Safeway because the company's answer had been stricken due to its noncompliance with the court's discovery directives. (As a result, Safeway was deemed to have admitted "all traversable allegations in the complaint, including the basic allegation of liability.")

Even though Safeway produced evidence that Wilson's claim was "fraudulent," the Kings County Supreme Court held it couldn't be considered and denied Safeway's motion to dismiss the case.

Since the company was unable to present an excuse justifying its failure to comply with the underlying discovery order, the Appellate Division, Second Department, affirmed.

When the case reached the New York State Court of Appeals, our state's highest court determined Safeway was unable to offer a defense to Wilson's claim in view of it's "absolute" liability.

In a dissent, Judge Pigott argued the "compelling" evidence should have been considered and, at a minimum, a hearing should have been required to determine whether Wilson "procured the judgment by fraud."

Would that have been a safe way for the majority to go?

 

For a copy of the Court of Appeals' decision, please use this link: Wilson v. Galicia Contr. & Restoration Corp 

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In People v. Mattocks, Jonathan Mattocks was convicted and sentenced to two to four years in prison, for criminal possession of a forged instrument.

According to experts, there is a specific spot on a MetroCard's magnetic strip which, when creased in a certain way, activates the turnstile -- even if the card lacks sufficient funds for the fare. Upon his arrest, Mattocks was found with 14 "altered" Metrocards.

Someone can be found guilty of criminal possession of a forged instrument when the item has been "falsely made, completed or altered."

Since an "alteration" occurs when an item is made to look "authentic" or appears "fully authorized" by its maker, Mattocks argued that "a bent MetroCard" didn't fit within that statutory definition.

On appeal, the Appellate Division, First Department, disagreed and was of the opinion that the real issue was whether the cards triggered subway turnstiles. Since Mattock's cards had zero dollar value but still permitted access to the public transportation system, they were found to have been "falsely altered" within the law's meaning.

Only the Court of Appeals can alter that!

To download a copy of the Appellate Division's decision, please use this link: People v. Mattocks

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In 35 City Island, LLC v. Banco Popular, Banco Popular sought to prove that it did nothing wrong when it allowed a check payable to "Vera Westin Restaurant Corp. dba Neptune Inn & 35 City Island Avenue LLC" to be deposited and cashed.

Apparently, only Vera Westin signed the check and misappropriated the money.

When 35 City Island later sued, Banco Popular argued that the use of the ampersand "equally joined Neptune Inn and 35 City Island LLC as one entity that reflected an assumed name for Vera Westin," leading the employee to believe that only one signature was necessary.

After the Bronx County Supreme Court sided with 35 City Island, an appeal to the Appellate Division, First Department, followed.

The AD1 noted that when there is an ambiguity as to the name of an entity placed on a check, a bank should treat the instrument as a "two-party check." It further observed, "To accept [Banco Popular's] argument that its employees were not required to know" how to properly respond to an ambiguous name "would encourage ignorance, rather than knowledge, of the law, which would be particularly inappropriate given the obligation of [the bank] to inspect the check for proper endorsement."

WIth that, we're signing off.

To download a copy of the Appellate Division's decision, please use this link: 35 City Island, LLC v. Banco Popular 

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In Weadick v. Herlihy, Pamela Weadick sued attorney Carol Anne Herlihy claiming a constructive trust -- an ownership right to an interest in property Herlihy had acquired.

Herlihy had discussed an opportunity to purchase a Tribeca building with Weadick and David Tullock. However, the latter two opted to go with another partner and bid separately on the structure. Herlihy still managed to acquire a 50% interest while Weadick and her partners secured the remaining 50% interest from another seller.

Weadick later claimed that Herlihy betrayed a "fiduciary duty" by secretly compelling the seller to exclude Weadick and Tullock from the sale, and by raising funds and bidding on the building on her own.

Interestingly, tape-recorded conversations revealed that Weadick and Tullock were the ones who had acted inappropriately. The recordings disclosed that the duo had approached the seller about excluding Herlihy and had recruited another partner before they parted ways with her.

While the New York County Supreme Court originally denied Herlihy's request to dismiss the case, it later granted her relief based on this "newly discovered evidence" and also awarded her "costs and sanctions." On appeal, the Appellate Division, First Department, affirmed.

The AD1 held that Herlihy "upheld her fiduciary duty," "did not undertake to divert the opportunity to herself prior to termination" and "did not abandon plaintiffs." Furthermore, the AD1 saw no basis to disturb the lower court's finding that Herlihy was entitled to "costs and sanctions."

By Decision and Order dated April 18, 2008, the New York County Supreme Court assessed sanctions in the amount of $3,000.00 and awarded Herlihy reasonable attorneys' fees in the amount of $52,158.60.

You go, Carol Anne!

To download a copy of the Appellate Division's decision, please use this link: Weadick v. Herlihy  

* * *

To download a copy of Justice Kapnick's order granting Herlihy fees, please use this link: Decision and Order dated April 18, 2008

To download a copy of JHO Beverly S. Cohen's recommendations (with respect to fees and sanctions), please use this link: Referee Report with Recommendations

To download a copy the underlying Supreme Court order affirmed by the Appellate Division, please use this link: Decision and Order dated January 2, 2007

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In Santo B. v Roman Catholic Archdiocese of N.Y., it was claimed that Rev. William White -- a monsignor associated with the Roman Catholic Archdiocese of New York -- sexually abused Santo B. for three years while he was altar boy at Holy Family Church.

When the Archdiocese sought to dismiss Santo's case on the ground that it was "time-barred," Santo contended that the limitation didn't apply since the Archdiocese engaged in a "practice of concealing the problem."

When the Westchester County Supreme Court dismissed his case, Santo appealed to the Appellate Division, Second Department.

The AD2 noted that Santo was required to file his suit no later than his 21st birthday, which was on October 16, 2001. Because he waited until 2005, the time to start his case had long since passed.

The appellate court was also of the opinion Santo was unable to establish the Archdiocese "engaged in affirmative wrongdoing, fraud, deception, or misrepresentations," which stopped him from timely filing his case. And, finally, while he also alleged "insanity" -- which might have stopped the clock from running -- Santo was unable to show an inability "to protect his legal rights because of an overall inability to function in society."

Spirito Santo!

To download a copy of the Appellate Division's decision, please use this link: Santo B. v Roman Catholic Archdiocese of N.Y. 

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In People v. Solock, Laura Solock was prosecuted for larceny and falsifying business records.

Apparently, Solock stole $125,000 over a three-year period while she was an employee of a family-owned business. According to a plea agreement reached with prosecutors, Solock was to pay restitution, plead guilty, and serve a 2 to 6 year prison term.

After she was sentenced by the County Court of Chemung County, Solock appealed to the Appellate Division, Third Department, claiming the outcome was "harsh and excessive."

The AD3 didn't agree. In view of the "enormity" of the crime committed, her lack of candor during the investigative process, her attempt to "shift blame to her employer ... because she was not paid that well," and the fact that the agreed-upon sentence was less than the maximum allowed, the appellate court could discern no irregularity and refused to reduce her sentence.

There was just no accounting for her behavior.

To download a copy of the Appellate Division's decision, please use this link: People v. Solock 

Posted by Lucas A. Ferrara, Esq. at 3:25 PM | Permalink | TrackBacks (0) | Comments (4)

In Columbo v. Columbo, Christopher Columbo asked a court to impose a "constructive trust," or, in other words, for a court order recognizing that he was the true owner of property that had been sold by his brother, Anthony Columbo. 

Barbara Whalen purchased the home from Anthony, who was allegedly Christopher's "nominee." 

Although the property had been in Anthony's name, Christopher paid for the downpayment, mortgage, and maintenance, and, arranged for the acquisition in this manner so that the latter's wife wouldn't know that the property had been purchased for a girlfriend. 

When Anthony tried to get the case dismissed, due to Christopher's "unclean hands,"  the Dutchess County Supreme Court denied the request.

On appeal, the Appellate Division, Second Department, agreed noting that the doctrine of unclean hands "applies when the complaining party shows that the offending party is guilty of immoral, unconscionable behavior and even then only when the conduct relied on is directly related to the subject matter in litigation."  In other words, since Christopher's wife wasn't a party to the case, the lechery wasn't relevant to the dispute. 

Why are we thinking a Columbo got it in the end?

To download a copy of the Appellate Division's decision, please use this link: Columbo v. Columbo

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In Oszustowicz v. Admiral Insurance Brokerage Corp., Admiral learned that its employee, Stephen Oszustowicz, had issued certificates of insurance to various companies even though Admiral’s records didn’t reflect the policies had been purchased.

Since these certificates bore false policy numbers and were signed by Oszustowicz, Admiral terminated his employment and contacted law enforcement officials. And even though Oszustowicz was arrested and charged with possession of a forged instrument, the criminal case was never tried.

Oszustowicz later sued Admiral for “false arrest and imprisonment” and, when the Kings County Supreme Court granted Admiral’s motion to dismiss the case, an appeal ensued.

The Appellate Division, Second Department, found that the facts of the case didn’t jibe with any cognizable legal theory. For “false arrest” or “false imprisonment” to be triggered, Admiral needed to play an active role in the arrest, by advising or encouraging the authorities to act, or by demonstrating “officious and undue zeal, to the point where the officer is not acting of his own volition.” Since the company merely contacted the police, and the case never went to trial, the AD2 concluded that the lawsuit had been properly dismissed.

Now that’s some policy!

To download a copy of the Appellate Division’s decision, please use this link: Oszustowicz v. Admiral Insurance Brokerage Corp.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

In DeLuca v. DeLuca, when she discovered that her ex-husband, Peter, had “fraudulently concealed assets from her and colluded with others to tamper with the divorce proceedings,” Jane sought to vacate the divorce settlement.

The alleged fraud took place in 1998, prior to the settlement, but Jane didn’t learn of the misconduct until 2003. Inexplicably, three years passed before she sought relief from the court.

The New York County Supreme Court found Jane’s fraud claim to be untimely and denied her request.  On appeal, the Appellate Division, First Department, referenced a state law -- CPLR 213[8] -- which provides:

A cause of action based on fraud must be commenced within six years from the time of the fraud, or within two years from the time the fraud was discovered or with reasonable diligence could have been discovered, whichever is later.

Because the alleged fraud occurred more than six years before she asked the court for assistance -- and she knew of the misconduct for over two years -- Jane won't recover a dime.

No, Jane, no!

 

 

To download a copy of the Appellate Division’s decision, please use this link: DeLuca v. DeLuca

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After being busted in a scheme to hide her absences, Olga Vazquez was fired from the New York City Police Department by Police Commissioner Raymond Kelly.

In Matter of Vazquez v. Kelly, the New York County Supreme Court determined that Officer Vazquez had been "missing in action," made false statements, doctored an official form, and then submitted forged materials, in an effort to conceal her absences.

On appeal, the Appellate Division, First Department, explained that Vazquez’s misconduct, coupled with her failure to qualify with a firearm, justified her termination. Her contention that her firing was “shocking to the judicial conscience or to one’s sense of fairness” ... drew blanks.

To download a copy of the Appellate Division’s decision, please use this link: Matter of Vazquez v. Kelly

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In the Matter of Shelton Johnson v. New York City Department of Environmental Protection (DEP), Shelton Johnson sought reinstatement and back pay from the DEP, after being terminated without a formal hearing.

Johnson, a DEP construction laborer, was arrested for stealing DVDs. After a search, police discovered a forged DEP placard and shield and Johnson eventually pled guilty to criminal possession of a forged document in the third degree.

By letter dated February 6, 2003, the DEP notified Johnson that because he pled guilty to a crime, he forfeited his employment status according to New York City Charter § 1116, which provides: “Any … employee of the city who shall willfully violate or evade any provision of law … or commit any fraud upon the city … shall be deemed guilty of a misdemeanor and … shall forfeit such office or employment.”

The New York County Supreme Court (by a Decision/Judgment dated October 9, 2003) dismissed Johnson’s lawsuit and held that his guilty plea was “tantamount to an admission that he committed a fraud upon the city,” and thus, no hearing was necessary.

On May 18, 2004, the Appellate Division, First Department, reversed and remanded the case, finding that Johnson’s conviction, “standing alone, without factual inquiry, [did] not show that petitioner perpetrated a ‘fraud upon the city,’ violated any law relating to his employment, or converted any City property to his own use within the meaning of § 1116.”

On remand, the Supreme Court ordered Johnson’s reinstatement and awarded him back pay and, on November 9, 2006, the AD1 affirmed.

When the case finally reached our state's highest court, by a decision dated February 12, 2008, the Court of Appeals also affirmed, as the record was insufficient to establish § 1116’s applicability. There was no evidence with regard to the forged DEP placard or shield which satisfied the “fraud upon the city” requirement.

With that, Shelton resumed his status as “Johnny DEP.”

To download a copy of the Court of Appeals’ decision, please use this link: Matter of Shelton Johnson v. New York City Department of Environmental Protection

To download a copy of the Appellate Division's decisions, please use this link: May 18, 2004 remand or November 9, 2006 affirmance

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

In Rite Aid Corporation v. Alex Grass, Rite Aid accused Grass (and others) of “fraud” with respect to the acquisition of stock in certain Rite Aid subsidiaries.

Rite Aid alleged that interests in Sera-Tec Biologicals, and two other companies, Immucor and Isolyser, had been acquired without the Board of Directors’ knowledge or consent.

Grass asserted that Rite Aid had been afforded notice of the purchase by way of financial records and internal communications which should have prompted the Board to investigate. He further argued that because Rite Aid had possession of that information, the lawsuit was barred by the statute of limitations -- a law which forecloses suits brought after a certain period of time has elapsed. The New York Supreme Court agreed and granted Grass’s motion to dismiss the case on those grounds.

On appeal, the Appellate Division, First Department, reiterated that a fraud claim must be filed within two years of the date the fraud was discovered, or could have been discovered with reasonable diligence. The amount of time in which a “reasonably diligent plaintiff” could have discovered a fraud “turns upon whether a person of ordinary intelligence possessed knowledge of facts from which the fraud could be reasonably inferred.”

Since Rite Aid already had relevant correspondence dating back to 1994, the company was on notice of the conduct and could not explain-away its failure to and file a fraud claim within the requisite time frame.

Although the company argued dismissal was premature absent completion of discovery, the AD1 was of the opinion that process would neither have been “productive” nor “helpful.” Moreover, the company’s claim of “equitable estoppel” was rejected, as that doctrine does not toll the statute of limitations when a plaintiff had knowledge of information which warranted an investigation before the statute of limitations expired.

Undeniably, the AD1 wasn’t about to come to Rite Aid’s aid.

To download a copy of the Appellate Division’s decision, please use this link: Rite Aid Corporation v. Alex Grass

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (0)

In Malik v. Nihar, Malik filed a case to recover the cost of car insurance premiums he had paid to Nihar, the owner of a livery cab company.

Malik, a cab driver with a poor driving record, was unable to obtain car insurance. In order to continue operating his cab, Malik came to agreement with Nihar where in exchange for insurance coverage through Nihar’s company, Malik sold his vehicle for $600 and paid $4,300 upfront for five and a half months of insurance payments.

Ten days later, Malik was in an automobile accident and totaled the car. While the insurance company paid Nihar $8,248, he only gave Malik $4,000.

After finding that Nihar had been “unjustly enriched” the Kings County Civil Court awarded Malik $4,316.50.

On appeal, the Appellate Term, Second Department, reversed and dismissed the lawsuit. The AT2 refused to grant Malik relief because of his “unclean hands,” and offered the following quote from another case:

“It is the settled law of this State (and probably every other State) that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object … For no court should be required to serve as paymaster of the wages of crime, or referee between thieves. Therefore, the law will not extend its aid to either of the parties or listen to their complaints against each other, but will leave them where their own acts have placed them.” (Ford v. Henry, 155 Misc 2d 192, 193-194 [App Term, 2d & 11th Jud Dists 1993], quoting Stone v. Freeman, 298 NY 268, 271 [1948], citing Schermerhorn v. Talman, 14 NY 93, 141 [1856]).

Purell, anyone?

To download a copy of the Appellate Term’s decision, please use this link: Malik v. Nihar

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (7)

 

 

Did you know that Metrocards (with little or no cash value) can be maneuvered in such a way that  turnstiles will unlock and allow access to the New York City Transit system, for free?

We certainly didn't.

The problem with using that method is that it could get you arrested, as Vincent Richardson discovered.

In People v. Richardson, Richardson reportedly approached people at a Grand Central Terminal subway station and, in exchange for a fee, offered to swipe his Metrocard in order to allow them entrance. When he was later arrested, police uncovered three Metrocards "bent in a manner as to allow the holder of said cards to enter the subway system even though there [was] an insufficient fare on said cards to allow entry".

After he was convicted of "criminal possession of a forged instrument in the third degree (Penal Law § 170.20)," and "unlicensed general vending," Richardson appealed to the Appellate Term, First Department, which upheld the convictions.

The AT1 found that the Metrocards had been "'falsely alter[ed]' so as to constitute 'forged instruments' within the meaning of the forgery statute (see Penal Law §§ 170.00[6], [7], 170.10[4])" and that the verdict of "unlicensed general vending" had also been based on "legally sufficient evidence."

Looks like Mr. Richardson may be remaining pretty stationary for a while.

To download a copy of the Appellate Term's decision, please use this link: People v. Richardson

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (1)

In Simone v. Homecheck Real Estate Services, Inc., Peter Simone filed a lawsuit seeking to recover damages for fraud and breach of a contract of sale. Simone purchased a home from James and Margaret Cleary and not only alleged that the Clearys provided false information on a Property Condition Disclosure Statement (“Disclosure Statement”), but that they intentionally concealed the defective conditions.

In connection with the property’s sale, the Clearys supplied a Disclosure Statement which indicated that there were: “no material defects in the footings; no rotting or water damage; no flooding, drainage, or grading problems that resulted in standing water or any portion of the property; no seepage in the basement that resulted in standing water; and no known material defects in the plumbing system, foundation/slab, interior walls/ceilings, exterior walls or siding, floors, chimney and patio/deck, and that no radon test had been done."

Although Simone had hired Homecheck Real Estate Services, Inc. to perform a home inspection, the company’s report revealed no material property defects.

After the closing, Simone discovered a number of material irregularities which included: "water leaking through the porch; the rear deck sinking because of excessive water and pooling of water; the roof separating from the rest of the house due to the deck sinking; improper footing on the deck; mold behind the sheetrock caused by water in the basement; the radon system blower was inoperative; a cracked chimney, rotted bathroom floors due to excessive water leakage; and evidence of long-term heavy water damage on the garage roof and walls."

After Simone’s case was filed, the Clearys moved to dismiss the complaint against them. While the Westchester County Supreme Court denied the Clearys’ motion, the Appellate Division, Second Department, modified the outcome.

According to the AD2, New York law "imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment." Thus, in order for a buyer to maintain an action for fraud, the seller must have engaged in some deceptive act or conduct, and not just have been silent.

The AD2 found that “[w]hen a seller makes a false representation in a Disclosure Statement, such a representation may be proof of active concealment." Assuming Simone’s allegations to be true for purposes of this kind of motion, the AD2 held that the lower court properly denied the branch of the Clearys’ motion to dismiss the fraudulent misrepresentation claim, as it was alleged that the Disclosure Statement they contained false representations.

The AD2 did not agree with the lower court’s disposition of Simone’s breach of the contract claim.  The agreement "specifically provided that the premises had been inspected by [Simone] and was being sold ‘as is’ without warranty as to condition, express or implied." In addition, title had closed and the deed was delivered. As a result, a legal doctrine known as “merger” ended any possible cause of action Simone had with regard to the contract. That being the case, the AD2 granted that branch of the Clearys’ motion which sought dismissal of the contract breach claim.

Please, don't take our word for it.

For a copy of the Appellate Division’s decision, please use this link: Simone v. Homecheck Real Estate Services, Inc.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

If a contract of sale provides that a structure is being sold "as is," you'd think a seller would be insulated from suit should problems with the property later arise. Right?

Well, if you said yes, you couldn't be more wrong. (At least as far as the Appellate Term, Second Department is concerned.)

In Marcri v. Vandermark, Macri sued to recover damages he incurred to repair a water leak that was uncovered after the closing.

Although the building was sold "as is," Vandermark had represented in the contract of sale that the water system was in "working order" at the time of closing. In actuality, the seller knew of the leak but didn't bother to disclose its existence to the purchaser.

The City Court of Newburgh, Orange County, relied upon that "as is" language and dismissed the buyer's case. On appeal, the AT2 reversed and awarded Macri $2500.

While finding that the "as is" language precluded a claim for contract breach, nothing prevented the buyer from asserting "fraud" and securing a recovery of the repair costs.

Is that the way "as is," is? 

For a copy of the Appellate Term's decision, please use this link: Marcri v. Vandermark

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (0)

Did the Appellate Division, First, Department, condone a religious leader's sexual misconduct in Marmelstein v. Kehillat New Hempstead?

In 1994, Adina Marmelstein met Mordecai Tendler, the founder and spiritual leader of The Rav Aron Jofen Community Synagogue, and a man known within the Orthodox Jewish community as a "scholar, educator, and community leader."

Marmelstein alleged that Tendler counseled her regarding her “personal, legal, and financial problems," particularly focused on her goals of marriage and procreation. As part of that "therapy," Tendler supposedly induced Marmelstein to have a sexual relationship with him, lasting from November 2000 until May 2005.

Tendler allegedly advised Marmelstein that she was "closed to the possibility of finding a husband," and that she needed to “permit him to have sexual intercourse with her so that her life will open up and men will come to her.” He reportedly was so close to God, that was her "only hope."

Unfortunately, Tendler’s “treatments” were unsuccessful, and Marmelstein remained unmarried. Furthermore, she alleged that Tendler warned her against exposing their relationship, threatening to have her "placed in a straitjacket,” “put in a penitentiary,” and “turn the community against her.”

In New York County Supreme Court, Marmelstein asserted four causes of action against Tendler. When the court dismissed only two of them (“fraud” and “negligent infliction of emotional distress”), Tendler appealed to the Appellate Division, First Department, which struck the remaining claims (intentional infliction of emotional distress and breach of fiduciary duty).

At common law, a woman could sue for “seduction,” defined as “conduct on the part of a man, without the use of force, in wrongfully inducing a woman to surrender to his sexual desires.” In 1935, the New York State Legislature abolished "seduction" as a means of recovery. (See section 80-a of the Civil Rights Law.)

According to the AD1, the remaining causes of action warranted dismissal because Marmelstein’s allegations, “[d]istilled to its essence,” comprised a seduction claim barred by law.

Although he advised her on “personal, legal, and financial” problems, neither a fiduciary nor “professional” relationship was alleged. And, while recent caselaw holds open the possibility of a “cleric-parishioner” fiduciary relationship, Marmelstein did not assert that Tendler served as her religious counselor. (The AD1 speculated that plaintiff intentionally omitted that claim for fear of dismissal on First Amendment grounds.)

Such a shonda, wouldn’t you agree?

For a copy of the Appellate Division's decision, please use this link: Marmelstein v. Kehillat New Hempstead 

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (0)

Just because someone is found to have breached an agreement with you doesn't mean you'll recover anything. 

You've got to be able to prove -- to a judge's satisfaction -- damages were suffered.

By way of example, in F & D Bagel Corp. v. Wald Realty, F & D Bagel d/b/a Bernie's Bagels, sued its landlord for refusing to consent to an assignment of the store's lease to a prospective purchaser. (The lease provided that the owner would not "unreasonably" withhold its approval to such a transaction.) 

Although the Rockland County Supreme Court found the landlord had violated the agreement, it ultimately dismissed the case due to Bernie's inability to prove damages. And, on appeal, the Appellate Division, Second Department, affirmed.

Despite Bernie's claim that the failed deal was the landlord's fault, the evidence demonstrated that the buyer had only executed a "letter of intent" to acquire the business for $275,000. And, that the document afforded the purchaser a 30-day due diligence period and was also subject to a formal contract of sale. (Isn't that an "agreement to agree?")

Without a "valid and enforceable agreement to sell the business," Bernie was unable to prove he had been damaged by the landlord's misconduct.*

We're at a loss to figure out why it took a trial to get to that point. Wouldn't that have been an issue readily disposable by way of motion practice? 

(Something to nosh on, no?)

For a copy of the Appellate Division's decision, please use this link: F & D Bagel Corp. v. Wald Realty

--------------------------

*It didn't help Bernie's case that he was a bit "fast and loose" with his facts and figures. When presented with a copy of the deli's tax returns -- which revealed that the business's income generation had been "significantly overstated" -- the purchaser testified at trial that had that information been made know to him he never would have purchased the deli nor made an offer.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

Prior to Joan Messner’s purchase of her penthouse apartment, her predecessor secured permission from the cooperative to enclose the terrace and convert it into a greenhouse.

In Messner v. 112 E. 83rd St. Tenants Corp., Messner believed that she was entitled to damages for the co-op’s failure to repair defects that allowed water to leak into her apartment and greenhouse. To that end, Messner filed a claim for breach of the proprietary lease, breach of the warranty of habitability, and further sought specific performance -- that is, an order requiring the co-op to allow the terrace area to be connected to the building’s central heating system.

After the New York County Supreme Court found the co-op was not liable (since an indemnification agreement required Messner to effect repairs to those areas that had been altered by the prior owner), Messner appealed to the Appellate Division, First Department.

On appeal, the AD1 reiterated that because the co-op was under no duty to make the repairs, it could not be held liable for its refusal to do so.

While Messner alleged that the co-op breached the proprietary lease and the warranty of habitability by failing to heat the greenhouse, since that enclosed area was never a habitable portion of the apartment, the AD1 was of the opinion that the co-op was under no obligation to provide that service.

Furthermore, although Messner claimed that she had received permission from the manager to connect to the building’s heating system, without any written proof, that argument was also given the cold shoulder.

Finally, the appellate court also determined that Messner could not amend her complaint to include a breach of fiduciary duty or fraud claim. In the absence of a fiduciary relationship before the closing, and in view of the co-op’s pre-sale disclosure of a report which questioned the greenhouse’s legality, the AD1 was of the belief that the entity's refusal to obtain a certificate of occupancy for the enclosed area was made in good faith and not subject to judicial scrutiny.

In the end, Messner was left out in the cold.

For a copy of the Appellate Division's decision, please use this link: Messner v. 112 E. 83rd St. Tenants Corp.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

Many landlord-tenant cases never get to the trial stage and are frequently resolved by way of an agreement known as a "stipulation of settlement" or "stip."

Like other contracts, these documents can be the subject of protracted litigation, particularly when errors, omissions, interpretative disputes or other misunderstandings arise.

So, while one party may think it's getting a form of closure by signing the document, the other may later feel that the agreement should be rescinded, or not enforced as written, and may ask a judge to restore the litigants to the status quo ante -- the way things were before the stip was signed.

While often an effective plot device for works of fiction, judges will typically resist use of this "way-back machine" power, unless extenuating circumstances -- like fraud, collusion or mistake -- are present.

If the existence of one or more of those factors can not be demonstrated to a court's satisfaction, the agreement's silence about a right or remedy will likely be perceived as a knowing and intentional relinquishment or "waiver" and a litigant will not be afforded an opportunity to rewrite the deal.

By way of example, in Rosewohl Enters., LLC v Gluck, Rosewohl settled a nonpayment case it had brought against its tenant, Jack Gluck, by way of a stipulation of settlement that was "so ordered" by a judge. 

When Rosewohl later sought to collect the fees it incurred for having to commence the case, both the New York County Civil Court and the Appellate Term, First Department, rebuffed that effort, finding that the stipulation's silence precluded the recoupment of those charges. 

So, for some, silence is golden.

 

 

For a copy of the Appellate Term's decision, please use this link: Rosewohl Enters., LLC v Gluck

Posted by Daniel Finkelstein, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

The New York State Property Disclosure Act requires a seller to provide the purchaser of a one- to four-family home with a Property Condition Disclosure Statement (PCDS). (Unimproved land, new construction, cooperative and condominium units are exempt from this requirement.)

The Act instructs the seller to complete the form based upon the seller’s “actual knowledge” of the property’s condition and touches upon such information as how long the seller has owned and occupied property, the structure’s age, whether there have been any claims made against the property, and whether there are any features “shared in common with adjoining land owners or a homeowners association, such as walls, fences or driveways.” There are also questions regarding environmental and structural conditions, and any mechanical systems and services.

Should a seller fail to provide a PCDS, the purchaser is entitled to a credit of $500 off the purchase price. More importantly, should the document contain information the seller actually knows to be untrue, the seller is liable for the actual damages the purchaser suffers and any other equitable or statutory relief a court deems appropriate. A recent case decided by the Appellate Term, Second Department, reinforces that point.

In Ayres v. Pressman, a purchaser filed a small claims action to recover expenses incurred as a result of real-property transaction that went awry. The defendant had provided a PCDS, which asserted that no features of the property were shared in common with adjoining landowners, and that there was an existing septic system which had no known material defects. It was uncontroverted, however, that the septic system was both materially defective and partially located on a neighbor’s property (which was also a violation of local law).

The trial court concluded that the seller had been aware of the septic system’s location and defect, and deliberately refused to disclose that information. On appeal, the Appellate Term, Second Department, found no basis to disturb those findings.

As a result, the purchaser was entitled to recover his actual damages, which included the cost of the title search and mortgage application fees.

Ouch!

For a copy of the Appellate Term's decision, please use this link: Ayres v. Pressman

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

Hertz is supposedly the world's second largest rental-car company, with some 1900 locations worldwide.

With that many offices, garages and other related facilities, you would think they'd have a pretty sophisticated group of real-estate professionals on their team. But a recent decision from the Appellate Division, First Department, sheds some doubt on that notion.

Apparently, in 2001, Hertz subleased a Manhattan garage from a company called Peach Parking Corporation. Before signing the sublease agreement, Hertz's representatives became aware of certain structural problems at the building but, for some reason, decided not to conduct a full-scale review.

In one e-mail, for example, Hertz's Director of Development corresponded with the company's Vice President of Real Estate and noted as follows:

I have reviewed the photos [of the property] and see structural, water intrusion and maintenance issues I could investigate. If there is no chance of adjusting our cost on this deal, or if it is in such high demand that we will take it as is, I wouldn't waste the money for detailed reviews ....

Some months later, Hertz requested that all parties to the lease (the Owner and all prior tenants) sign a document confirming that there were no defaults under that agreement. Some two years after that document was signed, Hertz received a notice from the property's owner demanding that the structural problems be corrected or the lease would be terminated and Hertz evicted from the space.

Of course, Hertz went ballistic and alleged that it was a victim of fraudulent conduct by all concerned. While the New York County Supreme Court allowed the rental-car company to assert a claim for "fraud in the inducement," on  appeal, the Appellate Division, First Department, reversed.

The AD1 did not look too kindly on the fact that Hertz's people were "on notice" of the garage's structural problems prior to the sublease's signing, yet elected to proceed with the transaction without a full investigation into the building's structural integrity (or lack thereof). By turning a blind eye to the truth, the AD1 was of the opinion that Hertz was precluded from filing a fraud claim.

After that not so peachy outcome, should we be leaving the driving to Hertz?

For a copy of the Appellate Division's decision, please use this link: Peach Parking Corp. v. 346 W. 40th St., LLC.

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (0)

In 1988, the True Zion Gospel Temple, Inc. (TZGT) sought an order from the Queens County Supreme Court approving the transfer of certain real property to its president, who subsequently deeded the property to her son, Jimmy T. Robinson.

Some 16 years after the initial conveyance, TZGT sought to void the transfer alleging "fraud" and noncompliance with the governing requirements of the Not-For-Profit Corporation Law.

The Queens County Supreme Court snubbed the effort and declared Mr. Robertson to be the property's rightful owner.

On appeal, the Appellate Division, Second Department, affirmed. TZGT was unable to show a basis to disturb the 1988 order. In addition to the fact that the purported failure to notify the Attorney General did not serve to void the transfer, TZGT's inability to detail the fraud allegations "with required specificity" prevented the suit's redemption.

Do I hear an Amen?

For a copy of the Appellate Division's decision, please use this link: True Zion Gospel Temple, Inc. v. Roberson

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (0)

The New York State Administrative Review Board for Professional Medical Conduct revoked a doctor's license for "practicing medicine fraudulently, practicing medicine with negligence on more than one occasion, engaging in conduct in the practice of medicine that evidences moral unfitness to practice medicine, filing a false report, failing to maintain accurate records and suffering from a psychiatric condition which impairs his ability to practice medicine."

This particular doctor's indiscretion included a sexual relationship with a "patient suffering from anxiety and depression on the same day that he was treating her for an abortion." After a hearing, the State Board revoked the doctor's license.

While the doctor raised an array of technical objections by way of an Article 78 proceeding, the Appellate Division, Third Department, ultimately concluded that the penalty did not "shock one's sense of fairness" and left the revocation undisturbed.

Frankly, it would have been shocking if the AD3 had concluded otherwise.

For a copy of Appellate Division's decision, please use this link: Matter of Abraham v. Novello

Posted by Lucas A. Ferrara, Esq. at 3:25 PM | Permalink | TrackBacks (0) | Comments (0)

Is the Archdiocese responsible for the misconduct of its priests?

The answer will depend on whether the individual's actions were perpetrated in furtherance of church business and within the "scope of employment."

Monsignor John G. Woolsey, pastor of St. John the Martyr Church, received some $490,000 from an elderly parishioner, Rose Cale. Alleging that Woolsey exerted "undue influence" over the senior, her Estate sued the Archdiocese claiming "respondent superior and negligent supervision." It further alleged that the Monsignor was guilty of  "overreaching, fraud or even theft." 

The Estate's claim was premised upon the allegation that since priests are "modestly paid," the church should have known or anticipated that the Monsignor would have accepted gifts and perpetrated "tortious acts."

When the Archdiocese moved to dismiss the case, the New York County Supreme denied the request. On appeal, the Appellate Division, First Department, reversed. The AD1 was not persuaded that the Archdiocese "knew or should have known of Monsignor Woolsey's propensity to commit the tortious acts alleged."

Since Woolsey's conduct was "not in furtherance of archdiocesan business and was a clear departure from the scope of his employment, having been committed for wholly personal motives," the appellate court was of the opinion that dismissal against the Archdiocese was warranted.

See, there IS a god.

For a copy of the Appellate Division's decision, please use this link: Naegele v. Archdiocese of New York

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

Darden Restaurants, Inc., "the world's largest casual dining restaurant company" operates all those "Red Lobster," "Olive Garden," "Bahama Breeze," "Smokey Bones Barbeque & Grill," and "Seasons 52" restaurants you'll find throughout the country. (According to the company's website, each year some 300 million meals are served at these 1400 establishments.)

The restaurateur got into a bit of a pickle when the Federal Trade Commission (FTC) charged Darden with "deceptive trade practices" under federal law. It was uncovered that Darden was charging its customers a "dormancy fee," when gift cards purchased from the chain were not used after a certain period of time. Apparently, appropriate disclosures were not made to customers at the time of purchase or the fine print on those cards was obscured or rendered illegible by the point type or graphic utilized.

In a three page complaint, the FTC alleged that customers were unaware of the monthly fee until such time as they attempted to use the gift cards and "discovered that the cards held little or no remaining value." 

According to the FTC, Darden:

failed to disclose, or ... failed to disclose adequately, that, after a specified number of consecutive months of non-use (i.e., 15 or 24 consecutive months), ... a $1.50 fee per month [was deducted] from the value of their gift cards until they are used again. This fact would be material to consumers in their purchase or use of [the chain's] gift cards. The failure to disclose this fact, in light of the representation made, was, and is, a deceptive practice.

In a press release dated April 3, 2007, the FTC announced that Darden has agreed to sign a "consent order" modifying its gift-card practices. The proposed order provides, in part, as follows:

IT IS ORDERED that respondents, directly or through any corporation, subsidiary, division, or other device, in connection with the labeling, advertising, promotion, offering for sale, sale, or distribution, in or affecting commerce, of any Darden Gift Card, shall not fail to disclose clearly and prominently:

A. the existence of any expiration date or Covered Fee associated with the Darden Gift Card; provided, however, that, at the point of sale, prior to purchase, respondents shall not fail to disclose clearly and prominently all of the material terms and conditions of any expiration date or Covered Fee associated with the Darden Gift Card; and

B. on the front of each Darden Gift Card, the existence of any expiration date or Covered Fee associated with the Darden Gift Card.

Darden has furthered agreed to make restitution and will restore the fees which were wrongfully collected from its customers' gift cards and will post notice of that refund on its various websites.

We believe the proposed resolution is flawed and should not be given final approval by the FTC. The agreement assumes that those Darden customers who were harmed by the company's "deceptive trade practice," kept their valueless gift cards. Quite unlikely, don't you think?

Since we fail to see how consumers will truly be made whole by this outcome, we're of the opinion that the settlement lacks claws legs.

For a copy of the FTC's complaint, please use this link: Darden Complaint

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The FTC is currently accepting comments from the public with regard to this proposed settlement. Comments should be forwarded to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, DC 20580, on or before May 2, 2007.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

No one is above the law ... except judges, apparently.

Moshe Rosenstein alleged that he was damaged when a Judge of the New York City Housing Court wrongfully entered a default judgment against him. (The Judge supposedly changed the  date of trial without notifying the tenant.)

Rosenstein's lawsuit, which claimed wrongdoing on the part of the judge, the administrative judges, court officers and clerks (with whom Rosenstein had interacted and/or were purportedly involved in the surreptitious rescheduling of the case and/or who refused to investigate the matter), was dismissed by a Court of Claims judge.

In its affirmance of that outcome, the Appellate Division, First Department, noted as follows:

Since the Housing Court judge who allegedly changed the date of claimant's trial without notifying claimant in order to grant claimant's landlord a default judgment had subject matter jurisdiction over claimant's landlord/tenant matter, any action taken by that judge in connection with that matter, even if malicious or corrupt, is cloaked with absolute immunity .... So too is the alleged wrongdoing of administrative judges, court officers and clerks in transferring and rescheduling the matter .... For the same reason, defendant cannot prevail on his claim administrators committed wrongdoing in not investigating his complaints about the allegedly corrupt judge and in not disciplining him ....

We can accept that the appellate court found no merit to the allegations made in this particular case.

But here is the part we don't get:

Why afford immunity to someone who has willingly engaged in an illegality? Shouldn't a miscreant -- which would include a corrupt judge -- be subject to personal liability for his/her misconduct?

Once the public trust has been violated, and a judge or court employee has been found guilty of criminal behavior, we see no reason to afford that individual unbridled immunity protections. (That strikes us as nonsensical.)

People should suffer the consequences of their misdeeds, no?

For a copy of the Appellate Division's decision, please use the following link: Rosenstein v. State of New York

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

If you’re like most Americans, you'll try to pack a day’s worth of errands into a single lunch hour or during the rush-hour commute to and from work. While on cell phones, many can be overheard speaking to their banks or other lending institutions. And, without trying very hard, you can frequently hear these callers reciting their account numbers, dates-of-birth, mothers’ maiden names, billing addresses, and other sensitive information.

Such scenes are being played out countless times a day in a variety of contexts. But for some, that seemingly innocuous phone call and the reckless volunteering of information can serve as the catalyst for financial ruin.

According to the U.S. Department of Justice (DOJ), identity theft has now surpassed drug trafficking as the number one crime in America. A Federal Trade Commission survey reveals that more than 10 million people are victimized each year. That means, every minute about 19 people are impacted. Worse yet, criminals are circumventing new security protocols faster than legitimate businesses and financial institutions can handle.

The thievery manifests itself in a variety of forms, from fraudulent credit applications to unauthorized withdrawals from bank accounts. The only common denominator seems to be that victims are often oblivious to what is happening until the crime has generated significant and often irreparable damage.

While there is no sure-fire way to defend against this harm, there are a number of basic steps which can greatly reduce your chances of being victimized. The DOJ, for example, recommends remembering and following the acronym: “SCAM.”

‘S’ stands for stingy. People are far too trusting of others and often unwittingly volunteer sensitive personal information. You must be cognizant that predators exist and be reluctant to share sensitive personal information with others unless you are absolutely certain of the inquirer’s legitimacy.

‘C’ stands for check. You should check your financial information regularly, with an eye towards both what should, and should not, be there.

‘A’ stands for asking for a copy of your credit report. You should periodically request a copy of your credit report. This an easy way to keep tabs on your existing accounts and ensure that someone has not ran amok with your identity.

And finally, ‘M’ stands for maintenance. You should exercise caution when it comes to safekeeping paper copies of bank, credit card, and other statements. This includes properly disposing of financial records and even undesired credit-card solicitations. When discarding anything that contains your personal information on it, anticipate how that data could be used against you were it to fall into the “wrong hands.” Since any information garnered may be used as a gateway to assuming your identity, consider destroying all unwanted documents by way of a shredder or other comparable device.

Ultimately, the key to mitigating the risk of being victimized is to remain vigilant. Passivity is a recipe for disaster. Don't be afraid to question a phone solicitor and, when in doubt, refuse to volunteer information. Identity thieves prey on the docile and uninformed.

As they say, the best defense, is usually a strong offense. So, the next time you’re waiting for that “Soy Milk Vente Double Mocha Frappuccino,” think twice before making that call --or, at least, could you please do so quietly?

For the DOJ's fact sheets on identity theft and fraud, please use this link: Identity Theft

Posted by Jonathan H. Newman, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

Banks hate third-party checks and here's a case that explains why.

In B.D.G.S., Inc. v. Balio, a Washington State based corporation hired two New York gentlemen to manage a local warehouse.  Their responsibilities included finding tenants and collecting rent (which was to be forwarded to B.D.G.S.).

Over the course of the parties' relationship, it became apparent that rent payments and other proceeds had been "misappropriated" and deposited into an account held by Beechgrove Warehouse Corporation (an entity formed by the two New Yorkers). With some variations, the rent checks (payable to B.D.G.S.) were endorsed as follows:

DBGS, Inc.

Pay to the order of

Beechgrove Warehouse

For Deposit

After the discrepancies were uncovered, B.D.G.S. commenced suit to recover its monies and asserted a claim against Savings Bank of Utica (SBU) "for money had and received." Under this common-law theory, a bank is obligated to pay the proceeds of a check to the "true payee owner," and remains liable for such sums "in the absence of a valid endorsement."

In response to the lawsuit, SBU countered that state law -- the Uniform Commercial Code -- limited the bank's liability to such sums which remained under its control.* The problem with SBU's argument was that it concededly violated its own internal policy and "reasonable commercial standards" when it came to the handling of third-party checks.

After a jury trial, SBU was found liable for $1,152,933.83.  Both the Appellate Division (Fourth Department) and Court of Appeals affirmed.  As the state's highest court noted in its decision:

In this case, the record supports the affirmed findings that SBU's actions were not commercially reasonable. There was expert testimony concerning aspects of the transactions