Sheehan v. Saoud
Decision Date | 28 January 2015 |
Docket Number | Civil Action No. 1:11CV163. |
Citation | 526 B.R. 166 |
Court | U.S. District Court — Northern District of West Virginia |
Parties | Martin P. SHEEHAN, Trustee of the Bankruptcy Estate of AGS, Inc., Plaintiff, v. Allen G. SAOUD, Fred D. Scott, West Virginia Dermatology Associates, Inc., and Central West Virginia Dermatology Associates, Inc., Defendants. |
Martin P. Sheehan, Sheehan & Nugent, PLLC, Patrick S. Cassidy, Cassidy Myers Cogan & Voegelin LC, Wheeling, WV, for Plaintiff.
Paul J. Harris, Harris Law Offices, Wheeling, WV, for Defendants Allen G. Saoud and Central West Virginia Dermatology Associates, Inc.
Richard N. Beaver, William A. Kolibash, Phillips, Gardill, Kaiser & Altmeyer, PLLC, Wheeling, WV, for Defendant Fred D. Scott.
Pending before the Court are motions for summary judgment filed by the defendant, Fred D. Scott (“Scott”) (Dkt. No. 89), and the plaintiff, Martin P. Sheehan, as Trustee of the bankruptcy estate of AGS, Inc. (“Sheehan” or “the Trustee”) (Dkt. No. 91). For the reasons that follow, the Court GRANTS IN PART and DENIES IN PART Scott's motion, and DENIES Sheehan's motion.
This case concerns the right of Sheehan, as Trustee, to recover funds he contends are rightfully owed to the bankruptcy estate of AGS, Inc (“AGS”). The questions presented in Scott's motion for summary judgment include (1) whether the claims asserted against him by Sheehan and co-defendant Allen G. Saoud (“Saoud”) are barred by collateral estoppel, and (2) whether he can be held personally liable for two contracts he executed in his capacity as director of co-defendant Central West Virginia Dermatology Associates, Inc. (“CWVD”). The question presented in Sheehan's motion for summary judgment is whether, as Trustee for AGS, he is entitled to judgment against Saoud.
Saoud was a licensed Doctor of Osteopathic Medicine, specializing in dermatology, who owned and operated a medical corporation named AGS, a participating provider in the Medicare and Medicaid programs.2 In 2001, Scott entered into the practice of dermatology with Saoud at AGS.
On January 25, 2005, the United States filed charges alleging that, between May 1998 and June 2004, Saoud had submitted unsupported medical billing claims to Medicare and Medicaid for payment. Saoud entered into a settlement with the United States on August 11, 2005, the terms of which required him to pay $310,800.58 in penalties, but did not require that he admit liability. Of importance, as part of that settlement, Saoud agreed to his exclusion from Medicare and Medicaid, and all other federal health programs, for ten years (“the exclusion agreement”).
Saoud's exclusion agreement prohibited him from controlling any medical practice that billed Medicare or Medicaid.3 Two weeks after signing that exclusion agreement, on August 26, 2005, Saoud “sold” his stock in CWVD, a medical corporation formed by him on May 31, 2005, to its sole director, Scott, for $ 1.6 million.4 Scott, however, never paid Saoud for the stock. Also on August 26th, Saoud resigned as President of CWVD, and, at least on paper, transferred his staff and patients from AGS to CWVD. Nevertheless, despite this transfer and the terms of the exclusion agreement, Saoud continued to exercise control over CWVD after August 26, 2005.
Although AGS had been left bereft of any patients or staff following their transfer to CWVD, Saoud “sold” AGS to Georgia Daniel (“Daniel”) on March 31, 2006, for $1 million.5 Daniel, a nurse practitioner, previously had worked with Saoud in his dermatology practice. Shortly after that, in April 2006, Saoud drafted a laboratory contract in which Daniel, as President of AGS, purportedly agreed to sell the histopathology portion of AGS's practice to CWVD for $1 million. Scott signed that contract in his capacity as director of CWVD.
More than two years later, Saoud prepared a purchase agreement, in October 2008, that purported to transfer ownership of CWVD from Scott to Daniel. Then, in March 2009, Saoud prepared a second purchase agreement that purported to transfer CWVD from Daniel to Dr. Timothy Peasak. After Scott resigned as director of CWVD in June 2009, Saoud solicited Dr. Frank Swisher (“Swisher”), a family practice physician, to act as director of CWVD's laboratory. Importantly, he never advised Swisher that Swisher's name and provider number would be used for billing, or that CWVD's laboratory would bill Medicare, Medicaid, and other federal health care programs, for dermatological pathology services that were in actuality performed by another lab.
In an effort to avoid a civil law suit against AGS by Mountain State Blue Cross/Blue Shield over alleged overbilling, Saoud filed a bankruptcy petition on behalf of AGS on May 9, 2009. Following that filing, the Bankruptcy Court appointed Sheehan as Trustee with the independent duty to pursue claims on behalf of AGS.
Saoud initially identified himself in the bankruptcy petition as President and Owner of AGS. At a meeting of AGS' creditors convened on June 18, 2009, however, Saoud disclosed that he previously had sold his stock in AGS to Daniel. Then, on August 18, 2009, he admitted that he was neither an owner nor an officer of AGS at the time he signed the bankruptcy petition. Later, on May 12, 2010, he claimed that Daniel had authorized him to file AGS' bankruptcy petition.
For her part, Daniel has denied that she ever authorized Saoud to seek bankruptcy relief on behalf of AGS. Further, she contended that Saoud had forged her signature on a document purporting to authorize him to file the bankruptcy petition.6
In December 2012, a federal grand jury returned a twenty-three count indictment charging Saoud with health care fraud, concealing a material fact in a health care matter, corruptly endeavoring to obstruct and impede the due administration of the internal revenue laws, making a false oath or account in relation to a bankruptcy case, and making a false statement to a federal agent. In May 2013, the grand jury returned a superseding indictment containing no additional offenses. Then, on June 4, 2013, the grand jury returned a second superseding indictment, which added new charges of health care fraud and aggravated identity theft.
Following a jury trial, on June 25, 2013, Saoud was convicted of thirteen counts of health care fraud, one count of aggravated identity theft, one count of concealing a material fact in a health care matter, one count of corruptly endeavoring to obstruct and impede the due administration of internal revenue laws, five counts of making a false oath or account in relation to a bankruptcy case, and one count of making a false statement to a federal agent.7 On March 25, 2014, he was sentenced to 99 months of incarceration, and received a fine of $ 2,630,000.00. His sentence also included a forfeiture money judgment of $ 1,243,118.29. The United States Court of Appeals for the Fourth Circuit affirmed Saoud's convictions in December 2014. See United States v. Saoud, 2014 WL 7210734 at *1 (4th Cir. Dec. 19, 2014).
On October 13, 2011, in his capacity as Trustee of AGS, Sheehan sued Saoud, Scott, CWVD, Daniel, and Robert R. Fraser (“Fraser”),8 under federal bankruptcy law and the West Virginia Uniform Fraudulent Transfers Act (“the WVUFTA”), W. Va.Code § 40–1A–1, et seq. (Dkt. No. 3). Scott in turn filed a crossclaim against Saoud (Dkt. No. 19). Eventually, Daniel and Fraser settled with Sheehan, and were dismissed as defendants on May 15, 2012 (Dkt. No. 37). Saoud filed a motion to dismiss both the complaint and Scott's cross-claim against him, but subsequently withdrew those motions (Dkt. No. 48). Saoud then answered the complaint and asserted a crossclaim against Scott (Dkt. No. 55).
On June 1, 2012, the Court referred the case to the Honorable Patrick M. Flatley, United States Bankruptcy Judge, for a report and recommendation (Dkt. No. 40). Due to his earlier involvement in the AGS bankruptcy petition, however, Judge Flatley could not consider the case (Dkt. No. 44), and the Court withdrew the reference. The United States moved to intervene (Dkt. No. 71) on June 5, 2013, seeking to stay the civil case until after the conclusion of Saoud's criminal case. The Court denied that motion as moot on July 2, 2013, following Saoud's convictions at the conclusion of his criminal trial (Dkt. No. 76).
On October 6, 2014, Sheehan filed an amended complaint against Saoud, Scott, and CWVD (Dkt. No. 86), alleging that CWVD still owed $634,159.00 to AGS based on the sale of AGS' laboratory to CWVD for $1 million. (Count I). Id. at 9. He also alleged 1) that the transfers of ownership among Saoud, Daniel, and Scott “constituted a scheme to defraud the creditors of AGS, Inc.,” and thus were voidable as a fraudulent transfer under 11 U.S.C. § 547 (Count II); 2) that the transfers of ownership were voidable as fraudulent transfers under the WVUFTA (Count III); 3) that the fraudulent transfers “constituted a conspiracy to violate” the WVUFTA (Count IV); and 4) that Saoud committed bankruptcy fraud and “conducted a criminal enterprise engage(sic) in, and whose activities, affect interstate commerce” in violation of 18 U.S.C. § 1962, and that Saoud is liable for attorneys' fees and treble damages (Count VI9 ). Id. at 9–10.
Scott answered the amended complaint on October 8, 2014 (Dkt. No. 87), followed by Saoud, who filed his answer on October 10, 2014 (Dkt. No. 88). With his answer, Saoud refiled his crossclaim against Scott stemming from the sale of Saoud's shares in CWVD (Dkt. No. 88 at 8). Saoud alleged that Scott had breached his contract by failing to pay the $1,600,000 purchase price, and that he also had breached his duty of good...
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