The decision is 20 pages long. I’ve edited down to the most relevant parts. The headings are my own; the ones in the decision are slightly different. I had to type this sucker out because I couldn’t cut and paste from the PDF decision. The date of the decision is April 11, 2008.
Parkway MRI, P.C., et. al. v. State Wide Insurance Co., 145984/04 (Civ. Ct. Queens County)(J. Siegal)
This case was tried by David M. Barshay, Esq., a partner at Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, P.C., along with Andrew Paul Cooper, Esq. and Craig Sanders of Hession Bekoff & Cooper, LLP.
The trial in this case was limited to “defendant’s affirmative defense that the Rabiner PCs failed to meet New York State or local licensing requirements and is therefore ineligable for reimbursement.”
THE COURT FOUND THAT:
As the defendant was required to establish by clear and convincing, and not by “loose and equivocal”, testimony and evidence that the Rabiner PCs were fraudulently incorporated…this court must grant plaintiff’s motion for a directed verdict. In addition, the evidence elicited at trial pales in comparison to that was before the courts in Mallela and Multiquest.
FACTS ELICITED AT TRIAL
- “[T]he court, on the record, decided not to admit [the management agreement] into evidence, noting that the purported signature of Dr. Rabiner was only on the guarantee and not on the management agreement itself”
- “Dr. Rabiner also testified that he did not sign the purported Management Services Agreement and had no recollection of signing the UCC-1 Financing Statement which contains Dr. Rabiner’s printed name along with his purported signature”
- “[T]he parties reached an agreement to admit into evidence the two federal criminal indictments of Jay Katz and the plea allocution of Jay Katz.”
- The plea allocution contains an admission that Jay Katz paid ‘approximately $870,000 in kickbacks to induce referrals of Medicare-Insured patients to certain MRI facilities’ and that Jay Katz ‘exercised control over and had a financial interest in’ the Rabiner PCs.”
- “Dr. Rabiner testified that in 198 he read approximately 100 to 200 MRI films per week, performed 100 to 200 X-ray examinations per week and performed 50-75 CAT scan examinations per week. Dr. Rabiner was approved the credentials of the Rabiner PCs’ radiologists and established the protocols that ensured that the techinicians proprely performed an X-ray and later developed the protocols for performing a CAT Scan and for MRI safety and compatibility”
- “Dr. Rabiner admitted that the paycheck he received, during this time period, was signed by a facsimile of his own signature and at times was signed by a facsimile of the business manager, Jay Katz.”
- “Dr. Rabiner stated that Joseph Stanley prepared the company’s tax returns. Dr. Rabiner also stated that Jay Katz did not sign the PCs tax returns. Dr. Rabiner did admit that some of the tax returns contained a forged signature of Herbert Rabiner and that he was unsure who signed those documents.”
- “Mr. Stanley testified that he prepared the Rabiner PCs tax returns without any input from Dr. Rabiner. Dr. Rabiner’s testimony confirmed that statement.”
- “Dr. Steven Prufer, a licensed radiologist, who was employed by Belt Parkway Imaging, PC, testified that he was interviewed and hired by Jay Katz. Dr. Prufer was employed by Belt Parkway for a few months before he ever met with Dr. Rabiner.”
- “Dr. Rabiner admitted that in 1998 his monthly compensation from his ownership of the PCs was a draw of $5,000 a month. Dr. Rabiner asserted that he was unware what the management company received as compensation in 1998. At trial defendant failed to introduce documentation establishing the amount of compensation Jay Katz’ management company actually recieved on a monthly basis in 1998 or net income after expenses.”
BURDEN OF PROOF
This court must first determine which standard of proof is appropriate to establish whether a medical corporation is fraudulently incorportated under NY Business Corporation Law 1507, 1508 and NY Education Law 6507(4)(c). It is well settled that claims based on fraud must be established by clear and convincing evidence. SImcuski v. Saeli, 44 NY2d 442 (1978). This action involves allegations, including but not limited to, whether the Rabiner PCs were fraudulently incorporated. Accordingly, the defendant must prove by clear and convincing evidence that Dr. Rabiner intended to create a professional corporation for the use by a non-professional or that a professional medical corporation is owned or controlled by unlicensed individuals.
DISCUSSION
[I]n Muliquest, PLLC v. Allstate Ins. Co. (17 Misc.3d 37 [2007]), the Appellate Term ruled that the plaintiff, a provider of psychological services, was fraudulently incorporated; the named “incorporating” psychologis testified that she was never and owner or member of the provider and that she never received compensation based on an ownership interest. In stark contrast, the matter before this court is bereft of any such testiony or admissions. In fact, the testimony in this case is quite the opposite. Dr. Rabiner insisted that he is the owner and operator of the Rabiner PCs and that Jay Katz was merely the managing agent.
Defendant asserts that Dr. Rabiner was improperly splitting fees with the Katz managment company. However, there was testimony that indicated that Jay Katz received funds from teh fees directly and more importantly the defendant failed to get the management agreement into evidince. Therefore, without the management agreement in evidence the court was not presented with clear and convincing evidence that Dr. Rabiner improperly split fees with Jay Katz in such a way that would threaten or impair the discharge of professional responsibility pursual to Education Law 6509-a.
The court cannot infer by the fact that Jay Katz may have improperly marketed on behalf of the Rabiner PCs that Dr. Rabiner was therefore not in control of the company.
The court also learned that Dr. Rabiner approved the credentials of the Rabiner PCs’ radiologists and established the protocols that ensured that the techinicians properly performed the various radiological services. Dr. Rabinder’s testimony is in stark contrast to the record in Multiquest the provider performed “certain other health services” but only a psychologist was listed as the member and manager for plaintiff. There is no dispute that the Rabiner PCs performed radiological services from the time of inception to date.
Althout the indictment and plea allocution [of Jay Katz] have a preclusive effect against the individual admitting the crime if certain conditions are met, no such leap of evidentiary constructs can be sued against the plaintiffs herein to establish their liability or actions. (Citations omitted)
The admission of the indictment and plea allocution does not establish that Dr. Rabiner intended to create a fraudulently incorporated medical practice or run a “sham” corporation. The fact that Jay Katz was indicted and plead to committing various illegal activity does not establish that Dr. Rabiner was intending to commit a fraud when he created the medical practice or even that Dr. Rabiner participated in the subsequent fradulent activity after the corporation was formed.
Defendant then called Joseph Stanley who prepared the tax returns for Jay Katz who provided not a scintilla of evidence against the Rabiner PCs. [T]he testimony of Mr. Stanley, in and of itself and in conjunction with the plea allocution, is legally insufficient to establish that the Rabiner PCs were fraudulently incorporated.
At the heart of defendant’s case are the discrepancies between the amount Dr. Rabiner reportedly earned versus the amount earned by Jay Katz. The indictment charged that in the years from 1996 through 1999, Jay Katz “caused the four MRI companies” to pay $11,837,549, then $18,183,853, then $25,749,604 to the shell corporations against gross receipts of $17,069,360, $23,966,394, and $25,749,604. Defendant asserts that the indictment proves that Jay Katz realized$11,631,927 of ordinary income during this period, which is significantly more than the $625,000 Dr. Rabiner allegedly earned for that same time period.
Defendant failed to introduce documentation or testimony establishing the expenditures of the Rabiner PC, such as the professional and non-professional salaries, capital expenditures, rent or other expenses as well as compensation Jay Katz’s management company may have recieved on a monthly basis in 1998, other than the draw or salary of Dr. Rabiner.
Dr. Rabiner’s failure to meet with one of his radiologists, in one of his many PCs, does not rise to clear and convincing evidence that the Rabiner PCs were fraudulently incorporated.
Dr. Rabiner’s testimony that he was the owner of Rabiner PCs and that he did not work for Jay Katz was uncontroverted as the defendant failed to produce a witness to either support its contentions or controvert Dr. Rabiner’s testimony. Accordingly, defendant failed to tie in each of the issues sufficiently to prove by a clear and convincing standard that the Rabiner PCs were fraudulently incorporated. Simcuski v. Saeli, supra
There was no testimony, nor was there an inference that the Rabiner PCs were improperly organized and created, as was the case in Mallela. Accordingly, the defendant failed to establish that the differential in the amounts of money received by Dr. Rabiner and Jay Katz is sufficient to conclued that the Rabiner PCs were fraudulently incorporated