Spitzer vs. the Little Guy

In 2005, The New York Times ran an in-depth series on Medicaid fraud in New York. By the paper's estimate, New York was annually losing upward of $18 billion on fraud, waste, and abuse. This put attention on then-Attorney General Eliot Spitzer, whose office was responsible for overseeing the system. His Democratic opponent for governor, Thomas Suozzi, accused the AG of neglecting state interests, focusing too much on high-profile cases.

Spitzer said Medicaid was receiving his investigators' attention, announcing as an example litigation against a Park Slope dentist. The suit alleged that Leonard Morse had bilked more than $1 million from New York. But as The Post reports today:

The charges collapsed at trial after reams of records were ruled inadmissible.

In the end, prosecutors asked Justice John Walsh to consider charges that Morse stole just $3,000. The judge found the dentist not guilty on that charge.

But today, Morse's patients are long gone -- scared off, he says, by the barrage of press releases calling their dentist a thief.

Claiming to having lost his client base, Morse is now suing Spitzer for $75 million.

"I think I want beyond money," said Morse. "I want justice. I want my good name back. I want all those thousands of patients back who I treated for 30 years. I want all my friends and neighbors and relatives to see that I didn't do anything. I became a political pawn."

Spitzer's suit was curiously timed in that its evidence was an audit performed in 2002. Last year I wrote about another instance where AG investigators uncovered small-time villains at the perfect moment; three small-time gas station were sued for alleged price gouging -- just as soaring prices filled headlines and airwaves. Because the piece is no longer available online, I'm reprinting it below:

SPITZER'S TWISTED GAS CRUSADE -- June 5, 2006

WHAT does Eliot Spitzer have against small New York businesses?

Asking that question are three gas station operators whom the attorney general is suing for "price gouging" in the aftermath of Hurricane Katrina.

In the midst of the late '70s oil panic, the Legislature made it a crime to "sell or offer to sell any [vital goods and services] for an amount which represents an unconscionably excessive price." When gasoline prices spiked in Katrina's wake, Spitzer invoked the statute against stations across the state.

Last September, the AG's office subpoenaed sales information from dozens of gas stations across the state, subsequently offering settlements to those it determined had gouged. Most chose to pay a fine rather than fight. But three refused; Spitzer is now pursuing civil cases against all three.

"[Spitzer's] ruined my reputation in [Oswego County] forever," fumes Joe Wiedenbeck Jr., who owned the Penn-Can Truck Stop Mobil in Center Square (Oswego County) at the time of the alleged gouging (he's since sold his business and retired to Florida). "We were in business for 31 years; we donated to every cause in the area.

"Why is he coming after me?" asks Danny Cianciulli, owner and manager of My Service Center in New Rochelle -- who says that his station lost money in the post-Katrina weeks, and on the year. In fact, he put up $50,000 of his savings just to keep the station afloat.

"Price gouging?" asks Cianciulli. "I haven't taken a vacation since 1985. I work from 7 a.m. until 7 p.m., six days a week. . . . It's my obligation to sell as low as I can. When gas prices go up, I lose money. If people think they're being mistreated, they go elsewhere."

Joe Alonzo, a partner at Wever Petroleum, which runs the Schaghticoke Mobil station in Rensselaer County, points out that at the time referenced in Spitzer's suit, he was charging 10 cents a gallon less than the nearest other station.

Cianculli says he sets his price by maintaining a 10-cent margin over whatever Exxon currently charges him for gas.

Wiedenbeck says he always set his price by adding a cent to whatever Wal-Mart and Fast Track were charging. After Katrina, "the supplier was changing his prices two to three times a day," he explains. "You have to be able to afford the next shipment of gasoline, because you have to pay for it before you receive it."

Spitzer says the stations did wrong by raising their prices on gasoline that they'd already bought at a lower price. "If they had gas in the ground, that they paid a specific price for, their costs did not go up, nor is it an acceptable excuse to raise their price," argues Paul Larrabee, a spokesman for the attorney general. Adjusting prices to changing costs, says Larrabe, "is not a defense under the [price gouging] statute."

But that's how small service stations do business, the defendants argue.

"We would have been out of gas if we sold by prices set in the past," said Adam Peska, an attorney for My Service Station. "Besides, whatever [short-term] profits he made were immediately eaten up by the next shipments."

Jim Calvin, president of the New York Association of Convenience Stores, an industry group, says, "There's a longstanding established practice of pricing motor fuel at replacement cost."

He compares it to real estate: If I bought a house four years ago for $100,000, he asks, and I sell it for $100,000 when prices have doubled, "how would I afford my next house in the new real-estate market?"

But the defense attorneys have a better reason for confidence: The statute's simply too unclear. It fails to define the "gross disparity" in prices that it says constitutes gouging. The standard is so vague that someone who wants to obey the law can't know how to obey.

Even Spitzer implicitly concedes this point: He has asked the Legislature to amend the price-gouging law so that prosecution would be more practical.

So why did he bring up these cases in the first place? He insists he's just fighting for the public good. Indeed, he brings the issue up on the campaign trail -- bragging that he's the nation's toughest state attorney general in fighting gas-price-gouging. (In fact, a new Federal Trade Commission study shows that Georgia's AG beat him, having settled with 64 gas stations, to Spitzer's 18 total.)

The defendants see politics in the timing. All three refused to pay the fine demanded in Spitzer's initial letter, instead submitting the requested documentation on their post-Katrina pricing. When they heard nothing more, they assumed Spitzer had decided to drop a weak case.

Then gas prices hit the news again in April -- and so did another Spitzer press offensive, announcing the three prosecutions. In fact, the defendants first heard of the suits from the media.

Spitzer's people managed to alert the press in time for the papers of Friday, April 21 -- but failed to serve any of the paperwork on the operators until the next Monday or Tuesday. ("We attempted to serve these stations prior to the public release of this information," insists a Spitzer spokesman.)

If politics is Spitzer's motive here, he's safe even if the cases eventually get thrown out of court: The proceedings likely won't wrap up before Election Day.

Meanwhile, he can keep on alleging that these small-time gas operators that struggle to stay in business have intentionally ripped off consumers -- a telling presumption for their aspiring governor.

UPDATE: The Morse complaint is here.