Moreover, Pinchus Horowitz testified at trial that he had a meeting with Grunbaum and Finkelstein at which they showed him a copy of what he believed was the complaint in this action. He testified that the meeting took place in late 1991.
21. Grunbaum asserted the Fifth Amendment privilege in response to questions directed at whether he knew of an entity called Hospital Software.
22. The Court finds that the defendant groups were interrelated and that both Finkelstein and Grunbaum were affiliated with at least one of the defendant groups. The Court also finds that an interrelationship existed among Finkelstein, Grunbaum, and the defendant groups.
23. Empire sent through the United States mail to each of the defendant groups monthly billing statements setting forth the amount of premium owed to Empire by each of the defendant groups. Finkelstein, Grunbaum, each of the defendant groups, and several hundred subscribers enrolled for Empire coverage through the defendant groups sent insurance applications, correspondence, and payments to Empire through the mail.
24. In order to pay premiums, Bredis, East Imports, Avrechai, Kent Mills, and Medin sent to Empire checks drawn from bank accounts located outside New York State as premium payments.
25. In order to pay premiums, certain of the defendant groups wired funds to Empire through money orders issued from bank accounts located outside New York State.
26. Harry Pantos, director of Empire's Group Integrity Unit, testified, and the Court finds, that between 1984 and 1991 Empire paid out $ 33,366,701 in claims made by subscribers enrolled for coverage through the defendant groups, and that, during that same time period, Empire received $ 5,941,621 in premiums from the defendant groups.
CONCLUSIONS OF LAW
The RICO Claims
1. In order to prove a RICO violation, a plaintiff has two burdens of proof. First, he must prove that: (1) the defendant, through the commission of at least two predicate acts, (2) constituting a "pattern" (3) of "racketeering activity," (4) conducts or participates directly or indirectly in the affairs of an "enterprise," (5) the activities of which affect foreign or interstate commerce. See 18 U.S.C. § 1962(c); see also Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir. 1983). Second, a plaintiff must prove that he was "injured in his business or property by reason of [the] violation." 18 U.S.C. § 1964(c); see Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 24 (2d Cir. 1990).
2. In drafting the RICO statute, "Congress sought to define [the word enterprise] as broadly as possible 'including' within it every kind of legal entity and any 'group of individuals associated in fact although not a legal entity.'" United States v. Indelicato, 865 F.2d 1370, 1382 (2d Cir. 1989) (quoting 18 U.S.C. § 1961(4)). The proof at trial was sufficient to establish the existence of an "enterprise" comprised of Finkelstein, Grunbaum, Pinchus Horowitz, and others associated therewith in an effort to obtain from Empire insurance coverage for those whom could not otherwise obtain such coverage.
3. The evidence also established that activities of the "enterprise" affected both interstate and foreign commerce. The "enterprise" solicited potential subscribers from several states as evidenced by the premium checks received by Empire from banks located outside of New York. Likewise, the Dvir complaint indicated that the "enterprise" undertook foreign solicitation.
4. Empire alleges that numerous mail and wire frauds are the predicate acts supporting its RICO claim against Finkelstein and Grunbaum. The offenses of mail and wire fraud each require proof of the same two elements: that defendant (1) knowingly participated in a scheme to defraud; and (2) knowingly used the mails -- or wires -- to further the scheme. Laro, Inc. v. Chase Manhattan Bank, 866 F. Supp. 132, 136-37 (S.D.N.Y. 1994); see O'Malley v. New York City Transit Auth., 896 F.2d 704, 706 (2d Cir. 1990). A showing of intentional fraud or reckless indifference to the truth is necessary to establish either offense. Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46, 49 (2d Cir. 1987), cert. denied, 484 U.S. 1005, 98 L. Ed. 2d 650, 108 S. Ct. 698 (1988), overruled on other grounds, United States v. Indelicato, 865 F.2d 1370 (2d Cir. 1989) (en banc); O'Malley, 896 F.2d at 706. The plaintiff must have reasonably relied on the misrepresentations by the defendant to further the scheme. See Metromedia Co. v. Fugazy, 983 F.2d 350, 368 (2d Cir. 1992), cert. denied, 124 L. Ed. 2d 662, 113 S. Ct. 2445 (1993).
5. Finkelstein and Grunbaum participated with others in a scheme to defraud Empire -- they established fictitious groups through which they would enroll individuals in need of urgent medical care for insurance that they could not otherwise obtain. Empire relied on the misrepresentations that constituted the scheme. Empire's reliance was reasonable.
6. The evidence at trial indicated that Finkelstein and Grunbaum mailed various documents to Empire, including group administrator applications, correspondence, and caused other documents to be mailed, including individual subscriber applications, billing statements, and payments. Thus, Finkelstein and Grunbaum knowingly used the mails to further the scheme. See Com-Tech Assocs. v. Computer Assocs. Int'l Inc., 753 F. Supp. 1078, 1092 (E.D.N.Y. 1990), aff'd, 938 F.2d 1574 (2d Cir. 1991); see also United States v. Bortnovsky, 879 F.2d 30, 36 (2d Cir. 1989).
7. The evidence at trial indicated that Finkelstein and Grunbaum caused funds to be transmitted by wire from banks located outside New York to Empire. Finkelstein and Grunbaum knowingly used the wires to further the scheme. See United States v. Corey, 566 F.2d 429, 430-31 (2d Cir. 1977); see also Polycast Technology Corp. v. Uniroyal, Inc., 728 F. Supp. 926, 946-47 (S.D.N.Y. 1989).
8. Empire established numerous mail and wire frauds as predicate acts supporting its RICO claim against Finkelstein and Grunbaum. Those misrepresentations were reasonably relied on by Empire in making decisions to provide coverage and pay for treatment.
9. Empire alleges that the combination of these predicate acts constitute a pattern of racketeering activity. In order to prove a pattern of racketeering activity a plaintiff must show that the "predicates are related, and that they amount to or pose a threat to continued criminal activity." H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1988) (emphasis omitted). Predicates are related if they "'have the same or similar purposes, results, participants, victims, or methods of commission.'" Id. at 240 (citing 18 U.S.C. § 3575(e)). Predicates pose a threat of continuity where they "can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes." Id. at 243.
10. Finkelstein and Grunbaum used the mechanics of the business of providing insurance coverage to further their scheme. Between 1984 and 1991, the predicates -- the mailings and the wire transfers -- infested that business on at least a monthly basis. Each mailing and wire transfer was undertaken for the same purpose. The victim was always the same. As such, the predicates are related. See Indelicato, 865 F.2d at 1382. In addition, there being no evidence that Finkelstein's and Grunbaum's "enterprise" had anything but an illegal purpose, the predicates also amount to a threat to continued criminal activity. See H.J. Inc., 492 U.S. at 243.
11. Empire established that the combination of the predicate acts constituted a pattern of racketeering activity.
12. Through the commission of these predicate acts, Finkelstein and Grunbaum "participate[d], directly or indirectly, in the conduct of [the] enterprise's affairs." As group administrators for at least two of the defendant groups, Finkelstein and Grunbaum each "participate[d] in the operation or management of the enterprise itself." Reves v. Ernst & Young, 122 L. Ed. 2d 525, 113 S. Ct. 1163, 1173 (1993).
13. Finkelstein and Grunbaum violated 18 U.S.C. § 1962(c).
14. Empire alleges that Finkelstein and Grunbaum agreed with each other and others to violate 18 U.S.C. § 1962(c). In order to establish RICO conspiracy liability, pursuant to 18 U.S.C. § 1962(d), a plaintiff must show that a defendant agreed to "commit the substantive racketeering offense through agreeing to participate in two predicate acts . . . and that he [knew] the general nature of the conspiracy and that the conspiracy extends beyond his individual role." United States v. Rastelli, 870 F.2d 822, 828 (2d Cir. 1989) (citations omitted). Although there was no direct evidence at trial sufficient to establish that Finkelstein, Grunbaum, and others had agreed to violate § 1962(c), there was circumstantial evidence strongly indicating that Finkelstein, Grunbaum, and others acted in concert with knowledge of the grand scheme. When questioned, Finkelstein and Grunbaum asserted the Fifth Amendment privilege against self-incrimination. Had Finkelstein and Grunbaum not asserted the privilege, the Court infers that they would have been damaged by their testimony. See Baxter v. Palmigiano, 425 U.S. 308, 318, 47 L. Ed. 2d 810, 96 S. Ct. 1551 (1975) (stating that "the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them").
15. Finkelstein and Grunbaum violated 18 U.S.C. § 1962(d).
16. Empire suffered damage in the amount of $ 27,425,080 which was directly and proximately caused by Finkelstein's and Grunbaum's violations of 18 U.S.C. § 1962(c)-(d). See Hecht, 897 F.2d at 24.
17. Finkelstein and Grunbaum are jointly and severally liable to Empire for treble the amount of Empire's damage, pursuant to 18 U.S.C. § 1964(c). That amount is $ 82,275,240.
The State Law Claims
18. Empire also seeks to hold Finkelstein and Grunbaum liable on the ground of common law fraud. Finkelstein and Grunbaum made material misrepresentations to Empire with intent to defraud. See Idrees v. American Univ. of the Caribbean, 546 F. Supp. 1342, 1346 (S.D.N.Y. 1982). Empire's justifiable reliance on the misrepresentations proximately caused its injury. See id. As such, the Court finds that Finkelstein and Grunbaum are jointly and severally liable to Empire in the amount of $ 27,425,080 on the ground of common law fraud.
19. This case was tried as a fraud case; there is no basis in the record for Empire's breach and recission of contract claims. Those claims are dismissed.
Statute of Limitations
20. RICO is governed by a four-year statute of limitations. Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 156, 97 L. Ed. 2d 121, 107 S. Ct. 2759 (1987). A plaintiff must bring its RICO claim within four years from the date it discovered or should have discovered injury to its business arising therefrom. See Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1102-05 (2d Cir. 1988); see also Moeller v. Zaccaria, 831 F. Supp. 1046, 1050-51 (S.D.N.Y. 1993). Empire filed the complaint in this action on December 6, 1991. Thus, Empire can recover on its RICO claims only for injuries to its business that it discovered or should have discovered on or after December 6, 1987. Empire began providing the requested insurance coverage to individuals through the defendant groups in 1984. It did not discover injuries until well after December 6, 1987 -- Empire had only learned of Dvir's allegation a few months before December 6, 1987. The Court concludes that Empire neither discovered nor should have discovered injury to its business prior to December 6, 1987.
22. For the above reasons, the Clerk of the Court is directed to enter judgment in favor of Empire and against Finkelstein and Grunbaum in the amount of $ 82,275,240, plus costs and reasonable attorney's fees.
LEONARD D. WEXLER
UNITED STATES DISTRICT JUDGE
Dated: Hauppauge, New York
June 8, 1995