Great American Ins. Co. v. Crabtree

Decision Date23 August 2012
Docket NumberNo. CIV 11-1129 JB/KBM,CIV 11-1129 JB/KBM
CourtUnited States District Courts. 10th Circuit. District of New Mexico
PartiesGREAT AMERICAN INSURANCE COMPANY, Plaintiff, v. RICHARD A. CRABTREE; LORETTA MARES; MICHAEL GALLEGOS; STEVEN R. GALLEGOS; NET LINK, LLC; MICHAEL & ASSOCIATES PROGRAMMING AND ENGINEERING CORP.; COMPLIANCE PROCESS INNOVATIONS SOLUTIONS LLC A/K/A COMPIS; VESA HEALTH LLC; and WORLD HCS, LLC, Defendants.

GREAT AMERICAN INSURANCE COMPANY, Plaintiff,
v.
RICHARD A. CRABTREE; LORETTA MARES; MICHAEL GALLEGOS; STEVEN R. GALLEGOS;
NET LINK, LLC; MICHAEL & ASSOCIATES PROGRAMMING AND ENGINEERING CORP.;
COMPLIANCE PROCESS INNOVATIONS SOLUTIONS LLC A/K/A COMPIS;
VESA HEALTH LLC; and WORLD HCS, LLC, Defendants.

No. CIV 11-1129 JB/KBM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

Dated: August 23, 2012


MEMORANDUM OPINION AND ORDER

THIS MATTER comes before the Court on: (i) Defendant Richard Crabtree's Motion to Dismiss with Prejudice Under Fed. R. Civ. P. 12(b), filed March 9, 2012 (Doc. 28)("Motion to Dismiss"); (ii) the Motion to Consolidate, filed April 13, 2012 (Doc. 33); and (iii) Plaintiff's Motion to Strike Exhibits Attached to Defendant Crabtree's Motion to Dismiss, filed April 26, 2012 (Doc. 39)("Motion to Strike"). The Court held a hearing on July 5, 2012. The primary issues are: (i) whether the Court should strike certain exhibits from the Motion to Dismiss; (ii) whether the Court should consolidate this action with Great American Insurance Co. v. Crabtree, No. CIV 12-0310 JB/ACT (D.N.M.); (iii) whether the statute of limitations bars the claims asserted in the First Amended Complaint for Subrogation ¶ 15, at 5, filed January 19, 2012 (Doc. 7)("Amended Complaint"), because St. Vincent Hospital had inquiry notice of the fraud and breach of contract outside of the four-year and six-year statutes of limitations; (iv) whether Plaintiff Great American Insurance Company has sufficiently alleged the existence of a contract; and (v) whether Great

Page 2

American, who paid St. Vincent Hospital for its losses incurred through Defendant Richard A. Crabtree's alleged fraud, seek subrogation against Crabtree. The Court will deny the Motion to Dismiss, the Motion to Consolidate, and the Motion to Strike. Because the attached exhibits are not pleadings within the context of rule 12(f) of the Federal Rules of Civil Procedure, the Court will deny the Motion to Strike. Because there is a motion to remand pending in case number 12-0310, and because the Court has not yet determined whether that case is properly before it, the Court will deny the Motion to Consolidate without prejudice to a party renewing the motion after the Court has decided the remand question. The Court will deny the Motion to Dismiss, because: (i) the statutes of limitation do not bar the claims asserted in the Amended Complaint; (ii) Great American has alleged sufficient facts to establish that there was a contract; and (iii) Great American may seek subrogation against Crabtree.

FACTUAL BACKGROUND

Consistent with the Court's duty to take the plaintiff's allegations as true under rule 12(b)(6), the Court takes its facts from the Amended Complaint. St. Vincent Hospital hired Crabtree as Vice President and Chief Information Officer in 2002 and, in 2006, he was promoted to Senior Vice President and Chief Operating Officer. See Amended Complaint ¶ 15, at 5. He was entrusted with broad authorities, including the authority to approve all expenditures related to information-system hardware or software. See Amended Complaint ¶ 15, at 5. Within months of his hiring, Crabtree and the other Defendants engaged in a scheme to misappropriate funds from St. Vincent Hospital through the submission of fraudulent invoices. See Amended Complaint ¶ 16, at 5-6. Through this scheme the Defendants billed at least $3,238,523.06 for "sham transactions consisting of payment for claimed services that were either never provided or were billed in amounts grossly in excess of their limited value." Amended Complaint ¶ 16, at 6. Crabtree was in a personal relationship with

Page 3

Defendant Loretta Mares. See Amended Complaint ¶ 17, at 6. Mares had an ownership interest in a number of companies that began doing business with St. Vincent Hospital when Crabtree was hired, including Defendants Net Link LLC and World HCS LLC. See Amended Complaint ¶ 18, at 6. Mares also has an ownership interest in other companies that began doing business with St. Vincent Hospital upon Crabtree's hiring. See Amended Complaint ¶ 18, at 6. Mares, through Net-Link, submitted fraudulent invoices, which Crabtree approved, totaling $701,574.00. See Amended Complaint ¶ 19, at 6. Mares, through World HCS, also submitted fraudulent invoices for services not rendered, which Crabtree approved, totaling $441,212.52. See Amended Complaint ¶ 22, at 7.

Defendant Michael Gallegos is Mares' brother and he, through Defendant Michael and Associates Programming and Engineering Corp., did business with St. Vincent Hospital. See Amended Complaint ¶ 25, at 8. M. Gallegos, through Michael and Associates, submitted fraudulent invoices for services not rendered, which Crabtree approved, totaling $757,371.41. See Amended Complaint ¶ 26, at 8-9. Defendant Steven R. Gallegos is also Mares' brother, and he, through Defendants Compliance Process Innovations Solutions LLC a/k/a COMPIS ("COMPIS") and Vesa Health, did business with St. Vincent Hospital. Amended Complaint ¶ 29, at 10. S. Gallegos, through COMPIS and Vesa Health, submitted fraudulent invoices to St. Vincent Hospital for services not rendered, which Crabtree approved, totaling $787,064.73. See Amended Complaint ¶ 30, at 10. Infinix, a Texas corporation, submitted fraudulent invoices to St. Vincent Hospital for services not rendered, which Crabtree approved and which totaled $551,300.00. See Amended Complaint ¶ 33, at 11-12. One of S. Gallegos' former employees owns Infinix, and Infinix has a contract with Com-Link, a business that Crabtree owns, pursuant to which payments from St. Vincent Hospital were transmitted through Infinix to Com-Link. See Amended Complaint ¶ 35, at 12-13. Net Link, Michael and Associates, and World HCS all used the same bank account as part

Page 4

of the scheme to defraud St. Vincent Hospital, even though they are separate entities. See Amended Complaint ¶ 38, at 13.

Crabtree, Mares, M. Gallegos, and S. Gallegos participated in a meeting for the purpose of convincing St. Vincent Hospital's compliance officer of Michael and Associates' legitimacy, and, as part of this meeting, they flew Infinix's owner in from San Antonio, Texas to "pose, falsely, as an engineer employed by Defendant Michael & Associates." Amended Complaint ¶ 39, at 13. Crabtree excluded knowledgeable St. Vincent Hospital personnel from interacting with the other Defendants. See Amended Complaint ¶ 40, at 14. The losses were not discoverable until March 2008, because of the Defendants' concealment. See Amended Complaint ¶ 41, at 14. St. Vincent Hospital made a claim for recovery to Great American for its losses. See Amended Complaint ¶ 42, at 14. Great American made a payment of $3,125,070.00, and, as a result of the payment, Great American has been subrogated to the rights of St. Vincent Hospital to the extent of its payment. See Amended Complaint ¶ 44, at 14. St. Vincent Hospital has assigned Great American all of its claims against the Defendants to the extent of the payment. See Amended Complaint ¶ 45, at 14.

PROCEDURAL BACKGROUND

Great American filed its Complaint for Subrogation on December 23, 2011. See Doc. 1. On January 19, 2012, Great American filed its Amended Complaint. See Doc. 7. Great American asserts five counts against the Defendants: (i) fraud based on the knowing submission and approval of false invoices; (ii) breach of fiduciary duty against Crabtree based on his approval of fraudulent invoices; (iii) aiding and abetting a breach of fiduciary duty against all Defendants, except Crabtree, for assisting in his breach of fiduciary duty; (iv) breach of contract based on the "legally enforceable terms and conditions of [employment] set forth in [Crabtree's] written employment agreements, including St. Vincent's policies and procedures, his job description, his performance expectations,

Page 5

St. Vincent's principles and standards for ethics and compliance, and St. Vincent's standards of performance"; (v) civil conspiracy for creating a scheme of false billings and submitting, approving, and accepting payment on fraudulent invoices; and (vi) unjust enrichment based on the payments for services either not rendered or in amounts grossly in excess of the value of the services. See Amended Complaint at 14-19. Great American alleges damages in the amount of $3,125,070.00. See Amended Complaint ¶ 68, at 19.

On March 9, 2012, Crabtree filed the Motion to Dismiss. See Doc. 28. Crabtree moves the Court to dismiss the Complaint under rule 12(b)(6), because: (i) Great American did not file the Complaint within the relevant statute of limitations period; and (ii) Crabtree did not have a contract with Great American. See Motion to Dismiss at 1. Crabtree asserts that, "[w]hile the statute of limitations is an affirmative defense, when the dates given in the complaint make clear that the right sued upon has been extinguished, the plaintiff has the burden of establishing a factual basis for tolling the statute." Motion to Dismiss at 2 (citing Andrew v. Schlumberger Tech. Corp., 808 F.Supp.2d 1288, 1292 (D.N.M. 2011)(Browning, J.)). He argues that the "last alleged date of fraud is December 20, 2007," and that the Complaint was filed December 23, 2011, outside of the four-year statute of limitations for fraud. Motion to Dismiss at 3. He contends that, under N.M.S.A. 1978, § 37-1-4, the...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT