On January 19, 2018, a False Claims Act (“FCA”) amended complaint originally filed in 2014 was unsealed in State ex rel. Light v. Melamed, No. 101451/2014 (Sup. Ct. N.Y. Cnty., filed Jan. 19, 2018). The suit alleges that a complex, years-long series of coordinated actions on the part of a named decedent, his estate, and his family members were designed to fraudulently deprive the State of income and estate taxes in violation of the FCA. The New York State Attorney General declined to intervene in the action.
Facts. The decedent, Dr. Myron R. Melamed, was a prominent pathologist, who had served in various executive roles at Memorial Sloan Kettering Hospital Center, New York Medical College, and Westchester Medical Center and was also a professor of pathology at Cornell University. Dr. Melamed also founded and operated University Pathology, P.C. (“University Pathology”) to provide medical analysis of specimens from patients treated at Westchester Medical Center and other New York facilities.
The qui tam plaintiff, Doreen L. Light (“Plaintiff”), alleges in the complaint that she worked with Dr. Melamed for over 20 years, serving as the Administrator of University Pathology from 1991 – 2012 and holding various other roles at New York Medical College, where Dr. Melamed also worked.
Plaintiff alleges that Dr. Melamed, his sons, and University Pathology engaged in a series of actions designed to fraudulently conceal Dr. Melamed’s true residency, income, and net worth for tax purposes, with the explicit purpose of avoiding income and estate tax in New York State. For example, the complaint alleges that Dr. Melamed was at all relevant times a resident of Westchester County, New York, working full-time in New York, and that both New York and federal law required all of Dr. Melamed’s work for University Pathology to be conducted at specific sites in New York that were licensed by and subject to the supervision of a regulatory authority.
Plaintiff claims that Dr. Melamed purchased a condominium in Florida “for the express purpose of avoiding New York State estate and income taxes” and allegedly provided Plaintiff with documents demonstrating that his New York State estate taxes could be reduced by a minimum of $1,500,000 if he claimed Florida residency.
In furtherance of these alleged tax avoidance efforts, Plaintiff claims that, for example, Dr. Melamed placed his home into a Qualified Personal Residence Trust (“QPRT”), pursuant to which the Westchester County residence would remain his personal residence for a period of nine years, when ownership of the property would transfer from the trust to his sons. The complaint alleges that Dr. Melamed and his sons fraudulently failed to abide by the explicit time limitation of the QPRT, falsely backdated a deed, and, contrary to his claims of Florida residency, permitted Dr. Melamed to continue to live in the house until it was ultimately sold in 2013.
The complaint also alleges that Dr. Melamed went to great lengths to conceal the fact that he only used his Florida condo as an occasional vacation home, visiting for no “more than a few days at a time.” Such efforts allegedly included (1) using Plaintiff’s personal checking account to pay bills associated with Dr. Melamed’s Westchester County home in order to hide the fact that he still resided there; (2) opening an E-ZPass account in Plaintiff’s name to hide Dr. Melamed’s Westchester County residency; (3) failing to pay rent to his sons after they acquired legal title to the Westchester County residence from the QPRT; and (4) making false statements to New York State officials, including during the course of a personal income tax audit conducted by the New York State Department of Taxation and Finance.
The complaint alleges that, at the time of his death, Dr. Melamed’s net worth was approximately $15.1 million and that his New York State estate tax liability would have been “at least $1,773,398.00.” However, Plaintiff alleges that neither Dr. Melamed’s sons nor his estate filed an estate tax return.
Causes of Action. Plaintiff brings five causes of action under the FCA. Two arise under FCA § 189(1)(d), which creates liability if a person “has possession, custody, or control of property or money used, or to be used, by the state . . . government and knowingly delivers, or causes to be delivered, less than all of that money or property.” Two other causes of action raise claims under FCA § 189(1)(g), which creates liability if a person “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the state or a local government.” Finally, one cause of action was brought under FCA § 189(1)(c), which creates liability where a person “conspires to commit a violation” of certain provisions of the FCA.
At this very early stage in litigation, only the complaint has been unsealed, and there has been no public disclosure of facts other than what is in the complaint. However, the complaint is significant for two principal reasons. As the first unsealed estate tax claim made under the FCA, it serves as a reminder that taxpayers face risk under New York’s expansive FCA for taxes other than the corporate franchise tax, sales and use tax, and personal income taxes, which have been the subject of previous unsealed complaints. This matter also demonstrates that a qui tam plaintiff can file a complaint even when the plaintiff may have played a significant role in the alleged wrongful conduct. While the FCA permits recovery by plaintiffs who were involved in the conduct that led to the FCA claim, a court may, in its discretion, reduce the amount of the recovery the plaintiff would otherwise be entitled to receive under the FCA. FCA §190(8).
The defendants generally have 20 days from the service of the complaint to file an answer or a notice of appearance, after which the parties will engage in motion practice or commence discovery.