Harvey M. Stone and Richard H. Dolan

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Eric N. Vitaliano found defendant jointly and severally liable to pay restitution in a “pump and dump” stock fraud, based on the losses to the victims from the time he joined the conspiracy. Judge William F. Kuntz II declined to dismiss an action challenging the government's termination of Haiti's Temporary Protected Status designation, granted in 2010 after an earthquake and later extended for other extraordinary events. And Judge Nicholas G. Garaufis dismissed without prejudice a claim by a Medicare provider challenging the procedures of the New York Department of Health in pursuing its Accelerated Collection Campaign.

Restitution

In United States v. Goodrich, 14 CR 399 (E.D.N.Y. Dec. 6, 2018), Judge Vitaliano awarded $2,329,007.05 in restitution against defendant following his conviction for conspiracy to commit securities fraud.

Cubed, Inc., a publicly traded stock, was the object of market manipulations that began before defendant joined the conspiracy. The Mandatory Victims Restitution Act (MVRA) provides for restitution “in the full amount of each victim's losses.” 18 U.S.C. §3664(f)(1)(A). “Given this individualized remedial purpose, the computation of restitution will often differ from the economic gain or loss computation used in the calculation of a defendant's sentencing guidelines.” Slip op. 2.

Defendant's entrance into an already ongoing conspiracy gave him certain benefits in calculating his sentencing guidelines, where the issue was the gain (or loss) during his involvement in the scheme. When he joined, Cubed stock was trading at $5 per share. The peak closing price before the crash of the stock was $6.75 per share. The economic gain (or loss) determinant for guidelines purposes was therefore $1.75 per share. The focus of that analysis is on the defendant's individual responsibility. This was part of the calculation that led to his sentence of 41 months in custody.

But in computing restitution, the focus is the victims' losses caused by defendant's misconduct and the misconduct of others that he could reasonably foresee. For that purpose, the computation of losses does not depend on trading prices when defendant entered the scene. Rather, it depends on the true value of Cubed stock when shares were purchased after that time. From the beginning and through the “pump” and crash, the stock was worthless. The individual losses of the victims who bought shares after defendant joined the conspiracy are fully chargeable to him.

Defendant is thus responsible to pay restitution in the amount of $479,007.05, based on public market trades of Cubed stock during his participation in the fraud.

Vitaliano also found that defendant's payment of restitution should extend to losses related to a fraudulent private placement of Cubed securities. Though defendant was apparently not involved in the planning or execution of the private placement, he was aware that the private placement was ongoing through the manipulation of stock. He could reasonably foresee the private placement losses, and the “synergy” between the public and private transactions was clear. Consequently, he was liable for the $1,850,000 in private placement losses after he joined the conspiracy.

Defendant also got no relief in urging that any restitution award be apportioned among the convicted conspirators and that he not be jointly and severally liable for the whole amount. His total trading volume in Cubed was only about $40,000, and his commissions on those sales totaled only $3,398.

Unfortunately for defendant, most of his co-defendants are cash-strapped. As a result, apportionment of liability would diminish the recovery for the victims. Nor did defendant show that his economic circumstances are significantly worse than those of his responsible co-conspirators.

Challenge to Termination of Temporary Protected Status Designation

In Saget v. Trump, 18 CV 1599 (E.D.N.Y. Dec. 14, 2018), Judge Kuntz denied the government's motion to dismiss an action challenging its termination of Haiti's Temporary Protected Status (TPS) designation, first granted in January 2010 following a devastating earthquake.

Under 8 U.S.C. §1254a, TPS includes special deportation protection for immigrants from designated countries who are temporarily unable to safely return to their home country because of ongoing armed conflict, an environmental disaster, or other extraordinary and temporary conditions. It had been extended as to Haiti on various occasions since the initial 2010 grant on account of, among other conditions, Hurricane Matthew in 2016 and a severe cholera epidemic. In November 2017, the Department of Homeland Security terminated Haiti's TPS designation based on the conclusion that the conditions from the 2010 earthquake no longer justified it, without considering the subsequent conditions that had led to extensions.

8 U.S.C. §1254a(b)(5)(A) provides that “[t]here is no judicial review of any determination of the [Secretary] with respect to the designation, or termination or extension of a designation, of a foreign state under this subsection.” Slip op. 5 (emphasis in opinion). Citing McNary v. Haitian Refugee Center, 498 U.S. 479 (1991), and other authorities, Kuntz found this did not bar plaintiffs' challenge. “[T]he judicial review provision in the TPS statute refers to an individual designation, termination, or extension of a designation with respect to a particular country, not to Defendant's determination practices or adoption of general policies or practices employed in making such determinations.” Slip op. 7. Moreover, “Plaintiffs allege the decision to terminate Haiti's TPS was premised on facts and motivations the TPS statute does not permit the Secretary to consider, and the decision was driven by unconstitutional racial animus.” Slip op. 8.

Defendants' motion to dismiss the claim for injunctive relief against President Trump was denied as premature, pending factual development. “Because this could be one of the rare cases in which the extraordinary remedy of injunctive relief against the President could be appropriate, it is premature to dismiss the President as a party at this time.” Slip op. 11.

Plaintiffs' claims under the Administrative Procedure Act survived. Defendants denied that, in terminating Haiti's TPS designation, they had departed from a prior policy or practice of considering conditions relating to subsequent extensions as well as to the initial TPS grant. They therefore necessarily failed to provide the required reasoned explanation for the departure. Slip op. 12-16.

Statements by President Trump raised issues of discriminatory intent sufficient to avoid dismissal of plaintiffs' Due Process and Equal Protection claims. Slip op. 17-23.

Doctrine of Prudential Ripeness

In Pisman v. Zucker, as Commissioner of the New York State Department of Health, 17 CV 7210 (E.D.N.Y., Jan. 9, 2019), a putative class action, Judge Garaufis dealt with a variety of issues related to claims by plaintiff, a Medicaid provider, that the State Department of Health (DOH), through its Accelerated Collection Campaign, had violated his procedural due process rights and deprived him of property without just compensation. Garaufis granted defendant's motion to dismiss, but without prejudice, and declined jurisdiction over the takings claim based on the doctrine of prudential ripeness, where plaintiff could not show that he had been deprived of any property interest.

In August 2017, plaintiff received a notice from DOH seeking payment of outstanding Medicaid liabilities and threatening action if payment arrangements were not made within 15 days. Plaintiff had not received any prior notice of a Medicaid overpayment determination, and the notice did not provide any details of his alleged liability or provide any opportunity to be heard. In February 2018, after plaintiff made many requests for information and was referred to two outside contractors, DOH provided plaintiff with copies of remittances reflecting a deficiency of $16,861.06.

Garaufis rejected DOH's argument that, because defendant had sent plaintiff copies of remittance advices detailing the deficiency owed by plaintiff, the procedural due process claim was moot. Providing the remittances did not address the question of why defendant failed to give any relevant records to plaintiff in the first place. In fact, DOH gave him the runaround by denying access to records because plaintiff was not listed as the “pay-to” and then denying him information about where the records had been sent based on HIPAA restrictions. Nor did the remittances constitute all of the necessary records to analyze the claim.

Plaintiff also challenged DOH's procedures for establishing the existence of plaintiff's indebtedness and, in a related vein, the lack of information necessary to evaluate defendant's claims. Production of the remittance advices also did not eliminate the effect of DOH's failure to provide plaintiff with timely notice of his liability. Accordingly, plaintiff's procedural due process claim was not moot.

Nonetheless, plaintiff's taking claim was not ripe. In light of Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985), plaintiff did not satisfy either the finality or the exhaustion requirement. Although he received a letter threatening enforcement action, DOH did not commence any proceedings against him or actually take his property. He thus did not suffer an actual injury. As to the finality requirement, the initial administrative decisionmaker had not rendered a final decision regarding the property at issue.

Nor had plaintiff exhausted state procedures to determine whether the DOH's collection procedures were lawful. In Vandor, Inc. v. Militello, 301 F.3d 37, 38-39 (2d Cir. 2002), the Second Circuit held that an Article 78 proceeding under the New York Civil Practice and Rules constituted an adequate remedy under New York law. New York state courts have considered Medicaid reimbursement claims in Article 78 proceedings. The New York Constitution also provides a remedy for takings claims. Plaintiff did not allege that he pursued an Article 78 proceeding or provide any reason for his failure to exhaust his state remedies.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.