The opinion of the court was delivered by: LEONARD D. WEXLER
1. Empire Blue Cross and Blue Shield ("Empire") brought this action by complaint, dated December 6, 1991, and amended complaint, dated January 17, 1992, for violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962(c)-(d), and common law claims for fraud, and breach and recission of contract against ten entities (the "defendant groups")
and eight individuals (the "individual defendants").
Empire proceeded to trial against two of the individual defendants Reuven Finkelstein ("Finkelstein") and Simon Grunbaum a/k/a Simon Green ("Grunbaum") on March 8, 9, and 13, 1995.
2. Empire is a not-for-profit health insurer, providing hospital and medical insurance coverage to approximately 8 million subscribers, most of whom live in New York State. Empire provides what it calls "community-related coverage" for groups consisting of between 3 and 49 employees. Where a group enrolled in community-related coverage consists of between 25 and 49 employees, Empire waives the usual bar against coverage for pre-existing conditions.
3. The defendant groups applied for community-related coverage, which included the waiver of the bar against coverage for pre-existing conditions. As a prerequisite to coverage, Empire asked the defendant groups to each submit two types of documents. The first type, a group administrator application, required the administrator of a group to identify the nature of the group's business, the group's address, a contact person and telephone number, and the group's total number of employees. The group administrator application, executed by the group administrator, obligates the group administrator to provide Empire with the group's employees' applications for coverage and remit to Empire premium payments for that coverage. Empire received group administrator applications for each of the defendant groups beginning in 1984 and continuing thereafter. Finkelstein was listed as the group administrator for Medin; Grunbaum was listed as group administrator for Hospital Software. The second type of document necessary for coverage, individual subscriber applications, identify each subscriber as an "employee" of the group and indicate the nature of his or her job. Empire also received individual subscriber applications for each of the defendant groups.
4. Empire provided the requested coverage to the purported employees of the defendant groups.
6. Empire undertook an investigation into Dvir's charge in September 1987. It was unable to contact Dvir or Finkelstein. Empire investigated the defendant groups and the subscribers enrolled through the defendant groups in order to ascertain whether they met the criteria for community-related coverage -- that is, whether the defendant groups were real businesses and the subscribers actual employees. The investigation uncovered sufficient information for Empire to conclude that the defendant groups were interconnected and involved in a fraud against Empire. Empire then terminated coverage for all individuals enrolled through the defendant groups and brought this action.
7. With respect to the investigation, the Court heard testimony from Patricia Fitzsimons ("Fitzsimons") and Thomas Creelman ("Creelman"), both of whom have been employed by Empire in its Program Security Department during the period of alleged fraud, and from Chaim Rothenberg ("Rothenberg"), Debbie Leibowitz ("Leibowitz"), and George Zeisler ("Zeisler"), each of whom received coverage through one or more of the defendant groups.
8. Fitzsimons testified that it was difficult for Empire to contact the defendant groups because the businesses were not listed in the telephone directories and because the New York State Secretary of State had no records of incorporation for any of the defendant groups except Medin. Creelman testified that he visited and photographed the sites listed as addresses for some of the defendant groups. His testimony and the photographs indicated that most of the sites were residential buildings. For example, when Creelman visited 1916 52d Street, Brooklyn, New York, the address listed for G. Contracting, he found a private home occupied by a woman who indicated that she had resided at that address for at least five years and that she had never heard of G. Contracting.
9. Fitzsimons testified that Empire was also unsuccessful in attempts to contact subscribers because subscribers were either not at the listed addresses or were unwilling to speak to the field investigators. Leibowitz testified that, even though she had enrolled for Empire coverage by listing Kent Mills as her employer, she had never worked for Kent Mills. Zeisler testified that he had never been employed by G. Contracting, but that he had received coverage from Empire after his wife had executed on his behalf an application listing G. Contracting as his employer.
10. Evidence also indicated: that the defendant groups experienced high subscriber turnover rates; that upon enrollment many subscribers immediately used Empire coverage for expensive medical services; and that, in many instances, a subscriber was enrolled for Empire coverage through two or more of the defendant groups at different times. Rothenberg, who was listed as a subscriber through both Zeigel and KCG, asserted the privilege against self-incrimination, pursuant to the Fifth Amendment of the United States Constitution, in response to questions regarding his employment with two of the defendant groups.
11. Finkelstein and Grunbaum asserted the Fifth Amendment privilege in response to questions regarding the representations made by them and others in the applications for Empire coverage.
13. The defendant groups were interconnected as evidenced by the group administrator applications and other documents submitted to Empire by the defendant groups:
(a) The address listed on the group administrator application for KCG is the same as that listed for Medin on its group administrator application and on correspondence sent to Empire by Finkelstein on Medin's behalf;
(b) Even though each of the defendant groups listed a different individual as its administrator, the telephone number listed on the group administrator application for G. Contracting is the same as that listed on the group administrator application for Zeigel and Kent Mills;
(c) The telephone number and the address listed on the group administrator application for Bredis are the same ...