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LM Business Associates, Inc. v. Davis

October 16, 2007




This is an action pursuant to 42 U.S.C. § 1983 alleging a "class-of-one" equal protection claim. Now before the Court is Defendant's motion [#34] for summary judgment. For the reasons that follow, the application is granted and this action is dismissed.


Unless otherwise noted, the following are the undisputed facts of this case, viewed in the light most favorable to Plaintiffs. Plaintiffs are related corporations which, at all relevant times, provided payroll, temporary staffing, employee leasing and insurance services to employers. Plaintiffs were owned primarily by Mark Boerman ("Boerman") and David Mann ("Mann").*fn1 The New York State Insurance Fund ("NYSIF") is a not-for-profit agency of the State of New York, which provides both worker's compensation insurance benefits and disability insurance benefits to employers. Plaintiffs purchased Worker's Compensation Insurance from NYSIF at various times. At all relevant times, defendant Robert Davis ("Defendant") was a Senior Investigator with NYSIF's Division of Confidential Investigations ("DCI"), whose purpose was to investigate insurance fraud.

Prior to April 2001, NYSIF learned of possible fraudulent activity by Plaintiffs and/or Boerman and Mann, involving Workers Compensation Insurance. DCI subsequently began investigating Plaintiffs, in cooperation with the Internal Revenue Service ("IRS"), the New York State Police, and local law enforcement. On or about April 4, 2001, Investigator Thomas Hand ("Hand"), an Investigator with the New York State Police, submitted a Search Warrant Application to Wayne County Court Judge, Honorable Stephen Sirkin, seeking permission to search Plaintiffs' offices and seize various items including computers. In a supporting affidavit, Hand indicated, in relevant part:

That your affiant has been involved in an investigation into apparently fraudulent activities involving some or all of the business enterprise know as "The Payroll Store," "Payforce," "Upstate Contractors," "American Staff Management," "Executive Resources," "Triple-County Agency," "Wayne Excavating," "LM Business Associates," "Northeastern Staffing Group," "Pro-to-Call," "Pay-Plus Service" and other enterprises, yet unknown. As well as the principals of these enterprises, including Mark Boerman ["Boerman"] and David Mann ["Mann"], and others yet unknown.

That members of the New York State Insurance Fund, including Senior Investigator Robert Davis, Division of Confidential Investigations , have met with your affiant regarding the fraudulent practices involving Workers Compensation Insurance that some or all of the business enterprises and the principals named above may be or have been, involved in. (Def. Appendix to Rule 56.1 Stmt.) Specifically, Hand indicated that one of the companies listed above, American Staff Management ("ASM"), was believed to have defrauded the NYSIF with regard to the purchase of Worker's Compensation Insurance, by incorrectly stating that it employed only clerical and sales staff, when it actually employed "workers [who] were involved in various laborer or physical work activities, not related to sales or clerical work, off the premises of the actual or alleged employer." (Id.) Hand further indicated that "'Payforce' and all or some of the related enterprises [except "Triple County Agency"]" "loaned" employees to other employers, as temporary employees, and charged the employers for Workers Compensation Insurance coverage, but purchased no such insurance. (Id.) Hand requested, as part of the warrant application, that IRS Special Agents, NYSIF Investigators, and Investigators with the New York State Workers Compensation Board be allowed to assist the New York State Police in its search of the premises. Judge Sirkin signed the search warrant on April 4, 2001. (Def. Appendix to Rule 56.1 Stmt.)

On April 5, 2001, members of the New York State Police executed the search warrant, assisted by local law enforcement, IRS agents, and members of DCI, including Defendant. Pursuant to the warrant, the New York State Police seized numerous boxes of documents and all of Plaintiffs' computers. Following the seizure, the computers were kept in the custody of the New York State Police and/or the IRS, though they were physically stored at DCI's offices in Rochester, New York.

During the execution of the warrant on April 5th, Boerman advised one of the individuals involved in the raid that Plaintiffs needed the computers in order to continue doing business. Boerman indicates that the individual told him he could have the computers back in about a week. Boerman, though, denies having any such conversation with Defendant that day. (Boerman Dep. 75)*fn2 However, approximately one week later, Boerman called Defendant, because "someone" had told him that Defendant was "the one to contact about the equipment." (Boerman Dep. 76). Boerman indicates that during a subsequent telephone call, Defendant made "vague promises" that Boerman would receive the computers back. (Boerman Dep. 34) Specifically, Boerman indicates that Defendant responded with, "We're working on it." (Boerman Dep. 79) Subsequently, Boerman's attorney, Donald Adair ("Adair"), left a phone message with an employee of NYSIF, indicating that he was seeking the return of the computers, and asked that the message be relayed to Defendant. On April 11, 2001, Defendant returned the call and left a message for Adair, indicating "that the Internal Revenue Service [was] 'ghosting' [the computers]; and . . . that the computers will probably be available next Tuesday or Wednesday," which would have meant April 17 or April 18, 2001. (Adair Aff. ¶ 14). Later that day, Adair spoke directly with Defendant and related "the problems that would result [to Plaintiffs' business] in getting payroll out if the computers were not returned by Tuesday, April 17th." (Id. at ¶ 15). Specifically, Adair indicated that Plaintiffs would go out business if they did not have the computers back by April 17. Defendant and Adair then "discussed the possibility of getting some of the computers back by [April 17] even if all of them could not be returned." (Id.) Adair subsequently faxed Defendant a list of the computers that were most important to Plaintiffs' payroll processing. During that same conversation, Defendant told Adair that he had tried to call Boerman, but that Boerman was "playing games" with him, which he was "not going to tolerate." (Id. at ¶ 15) Defendant further indicated that the case involving Boerman was "bad," and that the investigators "really got him [Boerman]." (Id.) On April 12, 2001, Adair again spoke by telephone with Defendant, who indicated that he "would call Mr. Boerman when they [the computers] were ready." (Id. at ¶ 18). Plaintiffs went out of business a short time later, purportedly due to the fact that they had not received the computers. Subsequent to the search and seizure, both Boerman and Mann were prosecuted. On March 24, 2003, Boerman pled guilty to Offering a False Instrument for Filing in the First Degree, and received a sentence of probation. Specifically, Boerman acknowledged that on August 14, 2000, he submitted a C-2 form that falsely stated that an individual named Francis Miller was employed by ASM and covered by Worker's Compensation Insurance. On or about October 22, 2004, Mann pled guilty to Filing a False Payroll Tax Return, in violation of 26 U.S.C. § 7206(1). Mann was sentenced to eight months imprisonment and ordered to pay over $1.3 million in restitution to the IRS.

Several months after Boerman's conviction, he was notified by an employee of the Office of the New York State Attorney General that he could retrieve the computers. (Boerman Dep. 46) Boerman obtained most of the computers from the IRS, although he also received some directly from Defendant. (Boerman Dep. 82-83, 87)

Plaintiffs commenced this action on April 2, 2004. Plaintiffs thereafter sought leave to amend the complaint, and pursuant to a Decision and Order [#11] filed on November 17, 2004, the Court permitted Plaintiffs to file an Amended Complaint. The Amended Complaint contains a single cause of action alleging a "class-of-one" equal protection violation*fn3 , and, in pertinent part, states:

69. The Defendants and NYSIF singled out the Plaintiffs for investigation and prosecution for the purpose of eliminating the Plaintiffs as competitors.

70. The Defendants and NYSIF conducted the search and seizure and subsequent investigation in an invidiously discriminatory manner.

71. The Plaintiffs were members of a class protected by the Equal Protection Clause of the Fourteenth Amendment to the Constitution.

72. The Defendants and NYSIF, intentionally treated the Plaintiffs differently from other ...

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