U.S. v. Rogan

• Decision Date: 29 September 2006
• Docket Number: No. 02 C 3310.,02 C 3310.
• Citation: 459 F.Supp.2d 692
• Parties: UNITED STATES of America, Plaintiff, v. Peter ROGAN, Defendant.
• Court: U.S. District Court — Northern District of Illinois

459 F.Supp.2d 692

UNITED STATES of America, Plaintiff, v. Peter ROGAN, Defendant.

No. 02 C 3310.

United States District Court, N.D. Illinois, Eastern Division.

September 29, 2006.

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Joseph A. Stewart, Linda A. Wawzenski, United States Attorney's Office, Chicago, IL, for Plaintiff.

Howard Michael Pearl, Bryna Joyce Roth Dahlin, Joseph Andrew Spiegler, Monika Maria Blacha, Neil E. Holmen, Winston & Strawn, Christopher J. Stathopoulos, Johnson & Bell, Ltd., Melissa M. Lee Benzon, Freeborn & Peters, LLP, Vincent J. Connelly, Mayer, Brown, Rowe & Maw LLP, Theodore Thomas Poulos, James R. Streicker, Terence H. Campbell, Cotsirilos, Stephenson, Tighe & Streicker, Chicago, IL, for Defendants.

OPINION AND ORDER

DARRAH, District Judge.

This matter comes before the Court for ruling after a bench trial on a civil complaint filed by the Government against Defendant, Peter Rogan, alleging violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729, and common-law claims. The Government claims that Rogan individually and in a conspiracy with others violated the FCA by presenting Medicare and Medicaid claims for patients referred to Edgewater Medical Center ("Edgewater") by co-conspirators, Drs. Ravi Barnabas and Andrew Cubria from 1995 to 2000.

The Court has considered the evidence, including the exhibits and the testimony of witnesses, and has further considered the final oral and written arguments, proposed findings of fact and conclusions of law and the authority cited therein submitted by the parties. In evaluating the accuracy and truthfulness of each of the witnesses, the Court considered, among other things: the ability and opportunity the witness had to see, hear, or know the things about which the witness testified; the witness's memory; any interest, bias, or prejudice the witness may have; the witness's intelligence; the manner of the witness while testifying; and the reasonableness of the witness's testimony in light of all the evidence in the case and whether or not and to what extent a witness's testimony was impeached.

Pursuant to Federal Rule of Civil Procedure 52, the Court enters the following Findings of Fact and Conclusions of Law based upon consideration of all admissible evidence and the Court's own assessment of the credibility of the witnesses. To the extent, if any, that Findings of Fact, as stated, may be considered Conclusions of Law, they shall be deemed Conclusions of Law. Similarly, to the extent, if any, that Conclusions of Law, as stated, may be considered Findings of Fact, they shall be deemed Findings of Fact. The Decision section of this Opinion and Order, for purposes of clarity, contains some reference to law and facts. To the extent, if any, that any part of the Decision may be considered Findings of Fact or Conclusions of Law, they shall be so deemed.

FINDINGS OF FACT

Background

Rogan has been involved in the field of healthcare and hospital administration for the past 32 years. He has a Master's Degree in Health Administration from St. Louis University and a Ph.D in Hospital and Health Administration from the University of Iowa. Rogan began his career in 1974, working for Ernst & Whitney, a major accounting and consulting firm, where he became a principal. While at Ernst, Rogan did consulting work for various hospitals in the Chicago area, including Northwestern, Children's Memorial, Michael Reese, and Edgewater. In 1983, Rogan became the CEO of St. Anthony's Hospital in Crown Point, Indiana. In 1986, Rogan left St. Anthony's and formed a company called Interhealth. While at Interhealth, Rogan provided consulting services to Edgewater, a teaching hospital located at 5700 North Ashland Avenue in Chicago, Illinois. Edgewater was in financial trouble at this time, and Rogan provided Edgewater consulting services regarding its financial situation.

In 1989, Rogan created Edgewater Operating Company ("EOC"); and EOC purchased Edgewater for a million dollars in cash and assumed the stated liabilities.

In 1992, Rogan developed a plan to sell Edgewater to a 501(c)(3) organization, a management company (which would be owned, in part, by Rogan) that would manage and administer Edgewater. Rogan would serve ostensibly as a salaried employee of the management company and would serve as the CEO of Edgewater.

In August 1994, EOC was sold to a 501(c)(3) organization, Northside Operating Company. Northside was created purposely — by its parent company, a California-based company called Permian, whose CEO was Scott Gross — for the purchase of EOC. Rogan and the other shareholders of EOC received $31.1 million from the sale of Edgewater. Of the sale proceeds, $9,268,619 retired various financial obligations. Rogan received $17,371,421 as a shareholder; the remaining shareholders were trusts in the name of Rogan's children, who received $4,099,960. The shareholders also received a subordinated note from Northside worth $4,000,000.

After the sale, Braddock Management, L.P. ("Braddock L.P."), a California-based limited partnership, was created to operate Edgewater. Rogan became an "employee" of Braddock L.P. and the CEO of Northside d/b/a Edgewater, pursuant to management contracts between Braddock L.P. and Northside from 1994-2001.¹ These contracts provided that Braddock L.P. would act as the exclusive manager of the day-to-day operations of the hospital, which included the submission of claims to Medicare and Medicaid for services rendered to patients, and would supervise and manage all billings, collections, cost reporting, and other financial matters related to the hospital's operation.

Braddock L.P. was compensated pursuant to the management contracts with Edgewater by a monthly fixed-fee payment and a payment based on a percentage of the hospital's "net patient-service revenue." Net patient-service revenue was tied to the number of patient admissions to Edgewater and was essentially a commission-based payment. There was a cap on the total amount of money that could be paid to the management company. Once the cap was met, the management fees would not increase. The capped fee was reached only in 1995 and 1996.

Rogan had a direct financial interest in maximizing the management fees Braddock L.P. earned from Edgewater as Rogan and his family effectively owned and controlled Braddock L.P. between 1995 and at least March 2000. Rogan's ownership interest was concealed through an elaborate scheme of inter-locking financial entities owned by Rogan, Rogan's children and other entities owned by Rogan as follows. In 1994, Braddock L.P. was controlled by a general partnership with Waldo Point Management ("Waldo"). Beginning in 1995, Rogan was the president of Waldo Point Management. Hogan also had a special proxy and power of attorney from Waldo Point's sole shareholder, Scott Gross (who was also the CEO of Permian, Northside's parent company), which provided for the effective transfer of control of Braddock L.P. to Rogan as of August 17, 1994. Rogan also had an option to purchase all of Waldo's shares from Gross at any time.²

Bainbridge L.P.'s limited partner was Boulevard Management, L.P. In 1995, Rogan, through Boulevard Management, L.P., another entity owned by Rogan, purchased a 99 percent limited-partnership interest in a company called Braddock Management, Inc. ("Braddock, Inc.") (which should be distinguished from the Braddock Management, L.P. that managed Edgewater). In October 1998, Rogan became the president of Braddock, Inc., f/k/a Waldo Point Management and became the general partner of Braddock L.P. Rogan and his children's trusts owned 100 percent of the shares of Braddock, Inc., f/k/a Waldo Point Management. Later, Bainbridge Management, Inc., f/k/a Braddock, Inc., f/k/a Waldo Point Management (as distinct from Bainbridge Management, L.P.) became the general partner of Braddock L.P. Rogan was the president, secretary, and director of Bainbridge, Inc. The sole shareholder of Bainbridge, Inc. was the Peter Rogan Revocable Trust, of which Rogan was the trustee. This partnership structure remained in effect until at least 2001.

Rogan's purchase of the limited partnership interest in Braddock, Inc. entitled Rogan and his children to 99 percent of the management fees that Braddock L.P. earned at Edgewater. Between 1995-2000, Braddock L.P.'s distribution to Rogan and his family totaled over $9.5 million. Over the years, Rogan assigned shares of his limited partnership interest in Braddock to trusts located in the United States and Belize for the benefit of his children. As of July 1997, 90 percent of the profits from Braddock L.P. flowed to Rogan's children's domestic and Belizean trusts. As of July 6, 1999, Rogan, his children's domestic and Belizean trusts, and entities owned by Rogan and his family were receiving at least 99 percent of Braddock L.P.'s partnership distributions. An entity owned by Rogan's family, Boulevard Investors of Belize, retained its 99 percent share in Braddock L.P. (later d/b/a Bainbridge L.P.) through at least March 2000.

Rogan further concealed his financial interest in Braddock L.P. and Edgewater when he was CEO of Edgewater. On June 11, 1996, Edgewater's auditors, Ernst and Young, sent Rogan a letter, requesting information on Edgewater's relationship with Braddock L.P. The letter asked Rogan to provide written representation of, among other things, Braddock L.P.'s "ultimate ownership." In a July 9, 1996 letter responding to Ernst and Young's query, Rogan represented that "no officer, director or employee of Permian, Vista, or Northside or related entity has any ownership, control, or financial interest in Primus, Braddock, or any entity related to Primus or Braddock."³ Rogan was the Chief Executive Officer of Northside (d/ b/a/ Edgewater) at the time he represented that no "officer" of Northside had any ownership interest in Braddock L.P. In a separate letter sent on ...