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United States v. Kernan

March 11, 2009

UNITED STATES OF AMERICA,
v.
JAMES M. KERNAN, ROBERT J. ANDERSON, AND MARLENE M. KERNAN, DEFENDANTS.



The opinion of the court was delivered by: Scullin, Senior Judge

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

In a fifteen count Superseding Indictment, the Government charges Defendant James Kernan with (1) one count of conspiracy to commit mail and wire fraud in violation of 18 U.S.C. § 1349 (Count 1); (2) five counts of mail fraud in violation of 18 U.S.C. § 1341 (Counts 2 through 6); (3) five counts of wire fraud in violation of 18 U.S.C. § 1343 (Counts 7 through 11); (4) three counts of insurance fraud in violation of 18 U.S.C. § 1033 (Counts 12, 14 and 15); and (5) forfeiture allegations related to Counts 1 through 11. See, generally, Superseding Indictment.*fn1

Defendant James Kernan moved to dismiss Counts 1 through 12 of the Superseding Indictment, and the Government cross-moved for discovery pursuant to Rule 16(b)(1) of the Federal Rules of Civil Procedure.*fn2 On February 3, 2009, the Court heard oral argument in support of, and in opposition to, these motions. Ruling from the bench, the Court denied Defendant James Kernan's motion insofar as it relied on his contention that Count 1 failed to plead the time period of the conspiracy properly; denied the motion insofar as it relied on his assertion that 18 U.S.C. § 1033(e)(1)(B) was unconstitutionally vague as applied to him; and reserved decision insofar as it relied on his contention that Counts 1 through 11 failed to allege a scheme to defraud the "victim PEOs" and failed to allege any contemplated or intended harm against those victim PEOs. Finally, the Court denied, without prejudice to renew, the Government's cross-motion for discovery.

The following constitutes the Court's written decision with regard to that part of Defendant James Kernan's motion on which the Court reserved decision.

II. BACKGROUND

Defendant James Kernan is a licensed attorney and the owner and President of Oriska Insurance Company ("Oriska"), located in Oriskany, New York. His wife, Defendant Marlene Kernan, is the President of Monument Agency, Inc. ("Monument"), which serves as an agency on behalf of Oriska.

The Superseding Indictment charges that Defendant James Kernan and Defendant Robert J. "Skip" Anderson, a three-time convicted felon, engaged in a scheme to defraud several professional employer organizations ("PEOs").*fn3 Defendant Anderson, in related charges, pled guilty to conspiracy to commiting the mail and wire fraud in violation of 18 U.S.C. § 371 and also to being a convicted felon engaged in the business of insurance in violation of 18 U.S.C. § 1033(e)(1)(A).

The gist of the scheme to the defraud charge is that Defendant James Kernan and Defendant Anderson falsely represented to the PEOs that Oriska was approved and authorized to write the workers compensation insurance that Oriska was marketing. The scheme varied depending on which state the victim PEO and its employees did business.

Oriska was licensed as a workers compensation insurance carrier in New York State during the time period charged in the Superseding Indictment. However, it was not authorized or approved to issue workers compensation insurance policies with a $250,000 deductible ("high deductible") until February 15, 2003. Oriska first filed for permission to issue high deductible workers compensation policies with the New York Insurance Department on November 20, 2002. The Government alleges that despite this lack of authority, Defendant James Kernan and Defendant Anderson falsely represented to New York-based PEOs prior to February 15, 2003 that Oriska had the lawful authority to issue high deductible workers compensation insurance policies. The Government further alleges that through such misrepresentations, Oriska generated millions of dollars in revenue from sales of unapproved, unauthorized and unregulated policies thereby putting at risk thousands of employees of New York-based PEOs.

Defendant James Kernan and Defendant Anderson also marketed workers compensation insurance to PEOs whose employees were located in other states, including Pennsylvania, Arizona, California, New Jersey and Maine. The Government alleges that during this time, Oriska was not licensed, authorized or approved to write workers compensation insurance of any kind in those states and that by falsely representing that Oriska could validly issue insurance in those states, Defendant James Kernan collected millions of dollars in revenue.

Finally, the government alleges that Defendant James Kernan introduced Anderson to the employees at Oriska as Director of Operations knowing of Anderson's felony convictions; that Defendant Anderson worked for both Oriska and Monument, reporting to both Defendant James Kernan and Defendant Marlene Kernan; and that Anderson was well compensated for his service*fn4 .

III. DISCUSSION

The Superseding Indictment contains multiple counts of mail fraud (Counts 2 through 6) and wire fraud (Counts 7 through 11). By way of example, Count 2 charges as follows:

From on or about December 2001, up to and including the date of this ...


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