and by falsely representing to certain patients that they needed to be hospitalized,

knowing that those patients did not need hospitalization;

f. created, and caused others to create, false records to justify and support claims

submitted to insurers, including false medical records and business records;

g. concealed, and caused others to conceal, from certain patients material information

concerning the payment of kickbacks in exchange for admissions, including the fact

that those kickbacks were intended to and did influence the decisions of certain

doctors; and

h, submitted[,] and caused others to submit[,] false and fraudulent claims for payment

to Medicare and Medicaid, which included claims relating to medically unnecessary

admissions, services, procedures and testing; and for services rendered to patients

who were referred to the hospital in exchange for kickbacks.

(Compl. 444.) Defendants provided kickbacks and illegal contracts to doctors who referred large
volumes of patients, including Medicare and Medicaid patients, to Edgewater.

Defendants submitted claims to Medicare and Medicaid for these referrals, unnecessary
procedures and hospitalizations, and obtained millions of dollars’ worth of payments from the United
States. Defendants falsely certified in the cost reports that the claims and statements were “true” and
“correct” and that the services were provided in compliance with federal law. Defendants submitted,
and caused others to submit, false claims to Medicare and Medicaid in which they, and others: (1)
violated the Stark Statute; (2) falsely represented that the services provided were medically
necessary; (3) concealed that certain admissions were medically unnecessary, induced by kickbacks,
and that co-payments had been waived; and (4) created false medical and business records. These
false cost reports were submitted by Roger Ehmen, an employee of Bainbridge L.P. and Braddock
who served as Edgewater’s senior vice president between 1996 and 2000, for the fiscal years 1995,
1996, 1997, 1998, and 1999. Defendants knew these claims for payment to be false or acted with

deliberate ignorance or reckless disregard as to their falsity.

Asaresult of Defendants’ false claims, Medicare reimbursed Edgewater at least $13,644,598



alleges that the fraudulent statements were made in the cost reports that were submitted to the fiscal
intermediaries of CMS. Thus, it is reasonable to presume that the allegedly false statements in the
cost reports were the collective actions of the officers of Bainbridge L.P. and Braddock.

“In a fraud case, for example, a principal is liable for fraud upon a third person committed
by an agent acting with apparent authority. ‘Liability is based upon the fact that the agent’s position
facilitates the consummation of the fraud, in that from the point of view of the third person the
transaction seems regular on its face and the agent appears to be acting in the ordinary course of the
business confided to him.” United States v. One Parcel of Land, 965 F.2d 311, 319 (7th Cir. 1992)
(quoting Restatement (Second) of Agency § 261 cmt. a.). The complaint alleges that: Rogan was
an officer of Bainbridge L.P., Bainbridge Inc., and Braddock; Bainbridge L.P., Bainbridge Inc., and
Braddock were responsible for Edgewater’s day-to-day operations; Ehmen, Edgewater’s senior vice
president, was an employee of Bainbridge L.P. and Braddock; and Ehmen submitted the allegedly
false costs reports. Therefore, the allegations in the complaint reasonably support the inference that
Ehmen acted with authority in submitting the allegedly false cost reports and that Enmen was an
agent of Bainbridge L.P., Bainbridge Inc. and Braddock.

Thus, the allegations in the complaint adequately inform Defendants of their role in the

alleged fraud; and, therefore, Defendants’ Motions to Dismiss are denied.

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and managed billing, collections, cost reporting, and other financial matters related to day-to-day
operations. In March 2000, Bainbridge L.P. bought out Braddock’s contract with Edgewater. Under
the contract, Bainbridge L.P. or Braddock were paid a percentage of Edgewater’s revenues.

The Centers for Medicare and Medicaid Services (“CMS”) is the agency that is responsible
for administering the Medicare program. CMS requires hospitals to submit annual hospital cost
reports at the end of the hospital’s fiscal year, stating the amount of reimbursement the hospital
believes it is due for the year. The cost reports are sent to “fiscal intermediaries”, usually insurance
companies, with which CMS contracts to process and pay the claims. Cost reports also contain a
“certification”, signed by the chief administrator of the provider or a designee of the chief
administrator, that the hospital cost report is (1) truthful; (2) correct; (3) complete; and (4) that the
services provided in the cost report were not procured directly or indirectly through the payment of
a kickback and billed in compliance with the Stark Statute, 42 U.S.C. § 1395nn, which prohibits the
payment of any “compensation” paid directly or indirectly to a referring physician.

Beginning in 1995 and continuing at least until December 2000, Defendants:

a. gave, and caused others to give, kickbacks and bribes in the form of money and

other remuneration and incentives to certain doctors, patient recruiters, and other

individuals, in exchange for patient referrals;

b, disguised the payment of kickbacks as legitimate payments for services, to avoid

discovery of the scheme;

c. hospitalized patients[,] and caused others to hospitalize patients[,] knowing that

these patients did not need to be treated in a hospital and did not meet the Medicare

or Medicaid criteria for hospitalization;

d. performed[,] and caused others to perform[,] medically unnecessary procedures

and testing on certain patients, including but not limited to heart catheterizations,

angioplasties, other angiographic and cardiac-related tests and procedures,

ultrasounds, CAT scans, blood tests, and x-rays;

e. generated hospital admissions, and caused others to generate hospital admissions,

by giving patients cash or other benefits, by coaching patients to lie about their
physical condition, by promising that hospital services would cost patients nothing,


in Medicare monies and $4,469,202 in Medicaid monies during the period beginning 1995 and
ending 2000.
DISCUSSION
Rule 9(b) provides that “[i]n all averments of fraud . . . the circumstances constituting fraud
. .. Shall be stated with particularity. Fed.R.Civ.P. 9(b). This means that persons alleging fraud must

«e.

state “‘the who, what, when, where, and how.” Boyd Mach. & Repair Co. v. American Int'l Homes,
Lid., 100 F. Supp. 2d 898, 900 (N.D. Ill. 2000) (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 628
(7th Cir. 1990)). “The allegations must be specific enough to provide the defendants with a general
outline of how the alleged fraud scheme operated and of their purported role in the scheme.”
Rohlfing v. Manor Care, Inc., 172 F.R.D. 330, 347 (N.D. Ill. 1997) (citations omitted).

To determine whether a complaint adequately pleads a claim of fraud, a court will bear in
mind the purposes of Rule 9(b): “(1) protecting the defendants’ reputations; (2) preventing fishing
expeditions; and (3) providing adequate notice to the defendants.” Rohlfing, 172 F.R.D. at 347
(citing Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994)).

Defendants move to dismiss, arguing that the complaint does not plead the fraud claims with
the particularity required by Rule 9(b). Defendants argue that the complaint fails to identify: the
specific persons who made the alleged fraudulent misrepresentations; the time, place, and content
of the misrepresentations; and the method by which the representations were communicated to the
Government. Rogan also argues that the complaint does not inform him of his role in the alleged
fraud.

The complaint alleges that Bainbridge L.P. and Braddock were responsible for the day-to-day

operations of Edgewater during the relevant period. The complaint also alleges the following: (1)

-5-



oy

CONCLUSION
For the reasons stated above, Rogan’s Motion to Dismiss and Defendants’ Joint Motion to
Dismiss are denied.

IT IS SO ORDERED.

. W. Darrah, Judge
United States District Court

Date: L029 OZ

-8-


‘Minatg Order Form (46/97)

United States District Court, Northern District of Dlinois

Na f Assigned Judge Sitting Judge if Oth
ror Magistrate Judge John W. Darrah ‘than Assigued Judge
CASE NUMBER 02 C 3310 DATE 10/29/2002
CASE USA vs. PETER ROGAN, et al
TITLE

of the motion being presented.}

{In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

defendants’ joint motion to dismiss are denied.

a1) @ (For further detail see order attached to the original minute order.]

MOTION:

DOCKET ENTRY:

(a Oo Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) Oo Answer brief to motion due___. Reply to answer brief due.

(4) im Ruling/Hearingon___setfor___att

(5) 0 Status hearing{held/continued to] {set for/re-set for]on__—ssetfor__—att

(6) Qa Pretrial conference[held/continued to] [set for/re-set forlon___—_—setfor__——sat_—

(7) Qa Trial[set for/re-set for]on at.

(8) Qo (Bench/Jury trial] [Hearing] held/continued to___—_at

(9) Qo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to)
OOFRCP4(m) (Local Rule 41.1 OFRCP4I1{a)(1) OO FRCP41(a)(2).

do ff [Other docket entry] | Enter Memorandum Opinion And Order. Rogan’s motion to dismiss and

No notices required, advised in open court.

No notices required.

umber of notices
Notices mailed by judge's staff, bet 31 00 m
Notified counsel by telephone. stare dockered
wv | Docketing to mail notices, jf
, rT
Mail AO 450 form. I) dockcting deqty ftials

Copy to judge/magistrate judge.

date mailed notice
courtroom

LG deputy’s
initials

Date/time received in ;
central Clerk’s Office mailing deputy initials



inthe

Roger Ehmen was an employee of Bainbridge L.P. and Braddock who served as Edgewater’s senior
vice president during the relevant period; (2) Roger Ehmen submitted false cost reports, which
Defendants, including Rogan, either knew to be false or acted with deliberate ignorance as to their
falsity, for the years 1995, 1996, 1997, 1998 and 1999; (3) these cost reports violated the Stark
Statute, falsely represented that the services provided were medically necessary, concealed the fact
that some of the admissions were medically unnecessary and had been induced by the payment of
kickbacks and the waiver of co-payments; (4) the cost reports are sent to fiscal intermediaries with
which CMS contracts to process and pay the claims; and (5) cost reports contain a “certification” that
the report is truthful, correct, complete, and that services provided were not induced by the payment
of kickbacks and billed in compliance with the Stark Statute.

These allegations are sufficient to satisfy the requirements of who, what, where, when and
how. The Government has alleged specifically when and where and to whom Roger Ehmen, an
employee of Defendants, made misrepresentations about the cost reports for the years 1995, 1996,
1997, 1998 and 1999. Furthermore, the Government has alleged what the substance of the
misrepresentations was, that the services provided by Edgewater were medically necessary and not
induced by the payment of kickbacks and had been billed in compliance with the Stark Statute. This
is sufficient to state a general outline of the alleged fraud.

As to the contention that the complaint does not adequately inform Defendants of their role
in the alleged fraud, “{i]n cases of corporate fraud where the false or misleading information is
conveyed in prospectuses, registration statements, annual reports, press releases, or other ‘group-
published information,’ it is reasonable to presume that these are the collective actions of the

officers.” Morse v. Abbott Labs., 756 F. Supp. 1108, 1111 (N.D. Ul. 1991). Here, the complaint

-6-


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STATES OF AMERICA,

Case No. 02 C 3310
Plaintiff,

Honorable John W. Darrah
vy.

)

)

)

)

)

)
PETER ROGAN; BRADDOCK )
MANAGEMENT L.P. (of California); —_)
BAINBRIDGE MANAGEMENT L.P.,  )
f/k/a Braddock Management L.P. )
(of Illinois); BAINBRIDGE )
MANAGEMENT, INC., f/k/a Braddock )
Management, Inc., f/k/a Waldo Point )
Management, )
)

)

Defendants.

MEMORANDUM OPINION AND ORDER

Plaintiff, the United States of America (“the Government”), has filed an eight-count civil
complaint against Defendants, Peter Rogan (“Rogan”), Braddock Management L.P. (“Braddock”);
Bainbridge Management, Inc. (“Bainbridge Inc.”); and Bainbridge Management, L.P. (“Bainbridge
L.P”), alleging violations of the False Claims Act, 31 U.S.C. § 3729 (2002) (Counts I-IV) and
common law claims for payment under mistake of fact (Count V); common law fraud (Count V1);
unjust enrichment (Count VII); and disgorgement, constructive trust, and accounting (Count VIII).

Rogan, Bainbridge L.P., Bainbridge Inc., and Braddock (collectively, “Defendants”) move
to dismiss the complaint, arguing that it does not satisfy the pleading requirements of Federal Rule

of Civil Procedure 9(b). For the reasons that follow, Defendants’ Motions to Dismiss are denied.


LEGAL STANDARD

When considering a motion to dismiss, well-pleaded allegations in the complaint are accepted
as true. Turner/Ozanne v. Hyman/Power, 111 F.3d 1312, 1319 (7th Cir. 1997). Any ambiguities
in the complaint are construed in favor of the plaintiff. Kelly v. Crosfield Catalysts, 135 F.3d 1202,
1205 (7th Cir. 1998). Dismissal is proper only when it appears beyond doubt that Plaintiff can prove
no set of facts to support the allegations in his or her claim. Strasburger v. Board of Education, 143
F.3d 351, 359 (7th Cir. 1998).

“Although the Federal Rules of Civil Procedure do not require a plaintiff ‘to set out in detail
the facts upon which he bases his claim,’. . . he must ‘set out sufficient factual matter to outline the

elements of his cause of action or claim, proof of which is essential to his recovery.” Benson v.
Cady, 761 F.2d 335, 338 (7th Cir. 1985) (internal citation omitted). A complaint will not avoid
dismissal if it contains “bare legal conclusions” absent facts outlining the basis of the claims.
Perkins v. Silverstein, 939 F.2d 463, 467 (7th Cir. 1991).

BACKGROUND

For purposes of this Motion to Dismiss, the following allegations are taken as true.

From 1995 until October 22, 1998, Rogan was the president of Waldo Point Management,
the general partner of Braddock, which operated Edgewater Hospital and Medical Center
(“Edgewater”) in Chicago, Illinois. Since October 22, 1998, Rogan has been the president, secretary,
and director of Bainbridge Inc. and the trustee for the Peter Rogan Revocable Trust, which is the sole
shareholder of Bainbridge Inc. Bainbridge Inc. was the general partner of Braddock and Bainbridge

L.P. at all relevant times.

Braddock was the exclusive manager of Edgewater’s day-to-day operations and supervised

-2-