The opinion of the court was delivered by: Steven M. Gold United States Magistrate Judge
ORDER and REPORT & RECOMMENDATION
GOLD, STEVEN M., U.S.M.J.
By motion dated July 6, 2010, plaintiff seeks entry of an order directing defendant Jacob Kagan to provide specified discovery and temporarily freezing certain of his assets. Docket Entry 927. The order is intended to prevent Kagan from secreting assets while plaintiff takes additional discovery I authorized during a hearing on June 25, 2010 with respect to Kagan's recent sale of real property he held through an LLC. For the reasons stated below, I grant the motion with respect to the discovery sought and respectfully recommend that plaintiff's application for an order restraining Kagan's assets be granted.
Plaintiff's claims in this case are described in detail in a Memorandum and Order I issued granting in part and denying in part plaintiff's motion for leave to file an amended complaint, Docket Entry 234, and an Opinion and Order rendered by United States District Judge Gershon denying various motions to dismiss, Docket Entry 764. In short, plaintiff alleges that Kagan owned and operated various medical services providers and related entities, that the medical services providers were fraudulently incorporated, and that he used his control of the providers and related entities to cause fraudulent claims for medical services and equipment to be submitted to plaintiff for reimbursement pursuant to New York State's no-fault motor vehicle insurance laws and regulations. Plaintiff has asserted claims against Kagan under the federal RICO statute and for common law fraud and unjust enrichment. Amended Complaint, Docket Entry 241.
Plaintiff's Original and First Renewed Motion to Freeze Kagan's Assets
Plaintiff first sought to freeze defendant Kagan's assets by motion filed March 24, 2006. Docket Entry 116. Plaintiff's motion sought both an order of attachment pursuant to Federal Rule of Civil Procedure 64 and a preliminary injunction pursuant to Rule 65. I heard argument and ruled on the motion on May 23, 2006. See Tr. of May 23, 2006, Docket Entry 146-1 ("Tr. of 5/23/06").
Although I ultimately recommended that plaintiff's motion be denied, I expressed serious concern about whether Kagan was attempting to shield his assets from creditors and great skepticism about his attempts to explain the transactions identified by plaintiff. For example, Kagan asserted that he sold real estate he owned jointly with his wife and arranged for the sales proceeds to be placed in an account in his wife's name because of the high interest rate available, but did not explain why an account in his wife's name was eligible to earn that interest rate while one in his own was not. Tr. of 5/23/06 at 37. Similarly, Kagan attempted to explain transfers of assets to a particular company as fees paid for his advice as a consultant, even though he was an owner or manager of the company supposedly paying for his own consulting services. Id. Moreover, while Kagan asserted that he conducted certain transactions on the basis of his accountant's advice, he neither identified the accountant nor produced an affidavit or other documents from the accountant to support his assertion. Id. at 38.
In opposition to plaintiff's motion for an order of attachment, Kagan's counsel argued that "what's most compelling [is that h]is properties are still in New York. He owns properties in his own name." Id. at 43. Kagan's counsel also urged the Court to take into account that "[i]n this case [Kagan] hasn't taken the Fifth. He's denied the allegations. We've been going forward and defending it vigorously." Id. at 46.
After hearing from the parties, I issued my ruling orally from the bench. First, I recommended that plaintiff's motion for a preliminary injunction pursuant to Rule 65 be denied on the basis of Supreme Court precedent limiting preliminary injunctions restraining assets to those assets that can be traced to a plaintiff's claim. Id. at 59. With respect to the prong of plaintiff's motion seeking an order of attachment pursuant to Rule 64, I began by reviewing the legal standards governing the motion. As I pointed out at the time, Federal Rule of Civil Procedure 64 provides that, "[a]t the commencement of and throughout an action, every remedy is available that, under the law of the state where the court is located, provides for seizing a person or property to secure satisfaction of a potential judgment." Under New York law, and in particular pursuant to N.Y. C.P.L.R. 6201(3), attachment is available when "the defendant, with intent to . . . frustrate the enforcement of a judgment that might be rendered in plaintiff's favor, has assigned, disposed of, encumbered or secreted property." Id. at 62.
I then turned my attention to plaintiff's evidence. I stated that "plaintiff has made a fairly persuasive showing that there's an effort being made to strip away assets" and that I was "extremely skeptical of the explanations that Mr. Kagan has put forth in his affidavit." Id. at 63. Nevertheless, I recommended that plaintiff's motion be denied. In reaching my decision, I took into account that at least some of the suspicious transactions either took place or were arranged before Kagan was served with plaintiff's complaint, and therefore could not have been intended to frustrate plaintiff's ability to enforce any judgment it might obtain in this case. Id. at 4-5. I also based my ruling in part on Kagan's interest in four real properties, and explicitly invited a renewed motion if those real estate holdings were liquidated. Id. at 65-66. Moreover, I authorized immediate discovery with respect to Kagan's assets. Id. at 66. My report and recommendation on plaintiff's motion was subsequently adopted and my discovery order affirmed by United States District Judge Gershon. Docket Entry 159.
Plaintiff renewed its motion under Rule 64 by letter dated July 31, 2007, Docket Entry 266. In support of its renewed motion, plaintiff pointed out that, despite the argument made by his attorney during the May 23, 2006 hearing, Kagan had refused to answer questions about his assets on Fifth Amendment grounds. Plaintiff also submitted additional evidence in support of its renewed motion. See Docket Entries 374, 383. Among other things, plaintiff pointed out that an order of attachment in Kagan's then-pending criminal case that originally restrained approximately $1,357,845 was subsequently modified to restrain only $10,000. Plaintiff also demonstrated that Kagan had transferred real property he owned at 390 Graham Avenue in Brooklyn ("390 Graham"), alleged by Kagan to be worth more than one million dollars, to an LLC.
Although the transactions and circumstances described by plaintiff in support of its renewed motion raised serious concerns, I concluded that Kagan's explanations were sufficient to overcome plaintiff's showing. For example, Kagan submitted evidence indicating that he and his wife each held a fifty per cent interest in Momik Realty, the LLC that took title to the real property at 390 Graham. Letter dated July 7, 2008, Docket Entry 563. After considering all of the facts presented by the parties, I again recommended that plaintiff's motion be denied without prejudice to renewal based upon additional evidence. Docket Entry 748. My recommendation was adopted without objection. Docket Entry 774. Because I ...