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Medical Emergency Service Associates v. Foulke

decided: March 25, 1988.

MEDICAL EMERGENCY SERVICE ASSOCIATES, S.C., AN ILLINOIS MEDICAL CORPORATION, PLAINTIFF-APPELLANT, CROSS-APPELLEE,
v.
DOUGLAS J. FOULKE, M.D., HOWARD J. CROFT, M.D., JULIO A. MANCERA, M.D., WILLIAM HELVEY, M.D., INDIVIDUALS; AND WAUKEGAN ASSOCIATES, LTD., AN ILLINOIS PROFESSIONAL CORPORATION, DEFENDANTS-APPELLEES, CROSS-APPELLANTS



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division, No. 85 C 4604-Susan Getzendanner, Judge.

Wood, Coffey, and Ripple, Circuit Judges.

Author: Coffey

COFFEY, Circuit Judge.

Plaintiff-appellant Medical Emergency Service Associates ("MESA") appeals the trial court's dismissal of its cause of action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., against four physicians formerly associated with MESA. MESA also appeals the court's award of Rule 11 sanctions against it, and the defendants cross-appeal the sanction award. We affirm.

I.

MESA provides medical staff to the emergency departments of various hospitals. In September, 1978, MESA contracted with Victory Memorial Hospital to furnish its emergency room staff. MESA and Victory Memorial renewed the contract annually, and it remained in effect until September 30, 1984.

As required under the contract, MESA entered into "individual contracts of employment" with each of the defendant doctors, and assigned them to Victory Memorial. Defendant Douglas J. Foulke, M.D., as "unit head" of MESA at Victory Memorial, was responsible for the supervision of those MESA employees who provided emergency medical services at the hospital. Dr. Foulke also made regular reports to MESA on the status of its endeavors at Victory Memorial.

According to MESA's complaint, one or more of the named defendants Foulke, Croft, Mancera, and Helvey, while under employment contracts with MESA, conceived and embarked upon a plan to form another medical supporting unit to replace MESA as the provider of emergency medical services at Victory Memorial Hospital. MESA alleges that the individual defendants conspired with each other to accomplish the following acts of fraud in furtherance of the scheme:

"(a) to form a corporation, controlled by defendants, to replace MESA as the provider of emergency medical services for Victory Memorial Hospital;

(b) to terminate each of their individual employment contracts with MESA simultaneously;

(c) to encourage Victory Memorial Hospital to terminate its contractual relationship with MESA and to enter into a similar agreement with defendants for the provision of these services;

(d) to disable MESA's operation at Victory Memorial Hospital, by terminating their contracts simultaneously so that MESA would not be able to compete with Waukegan Associates, Ltd. or any other potential competitor;

(e) to induce other physicians and other MESA employees to terminate their contracts with MESA simultaneously with defendants;

(f) to provide fraudulent reports to MESA without disclosing the scheme and to deceive MESA into believing that its relationship with Victory Memorial Hospital was not at risk or about to be terminated;

(g) to conceal any of the acts set forth here, all with the purpose of deceiving MESA and concealing from it the existence of the scheme until June 28, 1984;

(h) on May 22, 1984, to make incomplete disclosures and misleading and deceptive reports about communications Dr. Foulke had with Victory Memorial Hospital administrators regarding the continuation of the relationship between MESA and Victory Memorial Hospital and to conceal such communications."

MESA alleges that the defendants formed their own company (Waukegan Associates Ltd.) and without MESA's knowledge or consent reached an agreement to provide emergency medical services to Victory Memorial, thus replacing MESA as the provider of those services. In furtherance of this scheme, MESA also alleges that the defendants knowingly caused multiple mailings to be placed in the United States mails, with each mailing designated as a "predicate act" of mail fraud under 18 U.S.C. § 1961. As an example, MESA recites in its complaint that the "defendants caused false and fraudulent unit director reports and other written reports, and letters of notification of termination of contracts to be mailed and sent through the mails in furtherance of the scheme to defraud . . . [and] caused paychecks in payment of services rendered to be paid to physician defendants, which paychecks were part of the proceeds and secret profits of the scheme alleged herein." MESA asserts that this combination of alleged conspiratorial activities constitutes a "pattern of racketeering activity" under section 1961 of the RICO Act.

Each of the defendants moved to dismiss the complaint on the ground that MESA failed to: (1) allege fraud with particularity; (2) allege mailings in furtherance of a scheme to defraud; and (3) adequately allege the existence of a "pattern of racketeering activity" as required by section 1961. On January 6, 1986, the district court, relying on the Supreme Court's decision in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.14, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 n.14 (1985), our opinion in Illinois Department of Revenue v. Phillips, 771 F.2d 312 (7th Cir. 1985), the district court's ruling in Northern Trust Bank/O'Hare, N.S. v. Inryco, Inc., 615 F. Supp. 828 (N.D. Ill. 1985) and the trial judge's own decision in Graham v. Slaughter, 624 F. Supp. 222 (N.D. Ill. 1985), ruled that MESA had failed to ...


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