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ARENSON v. WHITEHALL CONVALESCENT & NURSING HOME

March 24, 1995

ARTHUR ARENSON, individually and as Executor of the Estate of Sol Arenson, Deceased, and on behalf of a class, Plaintiff,
v.
WHITEHALL CONVALESCENT AND NURSING HOME, INC. and PAUL MULDER, Defendants.



The opinion of the court was delivered by: RUBEN CASTILLO

 Arthur Arenson, individually and as Executor of the Estate of Sol Arenson, brought this putative class action against Whitehall Convalescent and Nursing Home, Inc. ("Whitehall"), and its president Paul Mulder ("Mulder") under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and supplemental state law claims. *fn1" The defendants have filed a Motion to Dismiss the remaining counts of the plaintiff's complaint ("Complaint") pursuant to Federal Rule of Civil Procedure 12(b)(6), *fn2" and a Motion to Strike portions of the Complaint pursuant to Rule 12(f). For the reasons given below, defendants' Motion to Dismiss is granted as to Counts I and III, but denied as to Counts II, VIII, IX, and X. *fn3" The defendants' Motion to Strike is denied. *fn4"

 LEGAL STANDARDS

 A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit. Triad Ass'n, Inc. v. Chicago Housing Auth., 892 F.2d 583, 586 (7th Cir. 1989), cert. denied, 498 U.S. 845, 112 L. Ed. 2d 97, 111 S. Ct. 129 (1990). All well-pleaded facts are taken as true, all inferences are drawn in favor of the plaintiff and all ambiguities are resolved in favor of the plaintiff. Dawson v. General Motors Corp., 977 F.2d 369, 372 (7th Cir. 1992). Where, as here, fraud is alleged, Rule 9(b) of the Federal Rules of Civil Procedure requires the underlying facts of the lawsuit to be set out with particularity. Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 122 L. Ed. 2d 517, 113 S. Ct. 1160, 1163 (1993). The federal system of notice pleading does not favor dismissal for failure to state a claim. Gray v. County of Dane, 854 F.2d 179, 182 (7th Cir. 1988). In short, the only question is whether relief is possible under any set of facts that could be established consistent with the allegations. Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir. 1992)(citing Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)).

 BACKGROUND

 Plaintiff's well-pleaded allegations, which the Court treats as true and views in a light most favorable to the plaintiff for purposes of this Motion, are as follows. Whitehall operates a nursing home in Chicago, Illinois, that has had approximately seventy-five residents on a daily basis since 1989. *fn5" Mulder is the president of Whitehall. When a person becomes a resident at Whitehall, that person and/or his/her sponsor--a guarantor for the payment of all the charges, costs, and expenses incurred for or by the resident--signs an agreement ("Resident Agreement") with Whitehall. In the Resident Agreement Whitehall promises and agrees that the resident will be charged for prescription drugs and other pharmaceutical supplies ("Pharmaceuticals") *fn6" purchased by Whitehall at Whitehall's cost. Whitehall also distributes a "Schedule of Charges" to its residents and their sponsors which states that medications will be billed at the current charges by Weber. Weber is a pharmacy and a medical supply company, with an office located in Skokie, Illinois, that services nursing homes.

 Whitehall entered into written agreements with Weber, pursuant to which Weber supplied all the Pharmaceuticals ordered by Whitehall for Whitehall's residents. Whitehall and Weber also entered into an oral agreement pursuant to which Weber generated two different sets of invoices for the Pharmaceuticals ordered by Whitehall. The first set of invoices showed the actual charges incurred by Whitehall for the Pharmaceuticals ordered from Weber. The second set of invoices purported to show the actual charges incurred by Whitehall for Pharmaceuticals ordered from Weber, but actually showed higher charges. Whitehall used the second set of invoices to collect higher amounts from the plaintiff and members of the putative class. According to the plaintiff, Whitehall's purpose in using the two sets of invoices was to cheat the plaintiff and members of the putative class by misrepresenting the charges that Whitehall incurred in purchasing Pharmaceuticals for them from Weber.

 The defendants also allegedly knew, or could reasonably foresee, that the wires and mails would be used in the ordinary course of their business. Whitehall also regularly used the wires to order Pharmaceuticals from Weber. Whitehall regularly used the mails to: order Pharmaceuticals from Weber; receive Pharmaceuticals from Weber; receive the two sets of invoices from Weber; send payments to Weber; send the second set of invoices to plaintiff and members of the putative class; and receive payments from the putative class members based in part on the second set of invoices.

 On July 6, 1992, Sol Arenson entered into the Resident Agreement with Whitehall. In the Resident Agreement Whitehall agreed that Sol Arenson would be charged for Pharmaceuticals based on charges actually incurred by Whitehall. Whitehall also gave plaintiff a copy of the "Schedule of Charges," which provided that charges for medications would be billed at the current rate charged by Weber. Plaintiff paid Whitehall a deposit of $ 3,950.00 and signed the Resident Agreement as a sponsor. In July 1992, Whitehall purchased Pharmaceuticals for Sol Arenson. Shortly after Sol Arenson died on July 13, 1992, Whitehall mailed a billing statement to plaintiff that listed charges totaling $ 349.76 for Pharmaceuticals purchased by Whitehall for Sol Arenson and a two page invoice that purported to show a breakdown of these charges. This amount was deducted from the deposit that plaintiff paid to Whitehall. The actual amount that Weber charged Whitehall for these Pharmaceuticals, as shown by the invoice sent by Weber to Whitehall, was $ 284.89.

 COUNTS I and II

 Count I alleges that Whitehall violated § 1962(c) of RICO through a pattern of mail and wire fraud. *fn7" Count II alleges that Mulder violated § 1962(c) through a pattern of mail and wire fraud.

 A. Rule 9(b)

 The defendants first argue that the plaintiff has failed to allege the predicate acts of mail and wire fraud with the particularity required by Rule 9(b). *fn8" The defendants point out that the plaintiff's Complaint is devoid of specific allegations indicating when the alleged mail fraud took place, how many times the alleged mail fraud took place, the contents of the mailings, and who was responsible for the purported misrepresentations.

 A RICO complaint that rests on predicate acts of mail fraud meets the particularity requirement of Rule 9(b) if it, "within reason, describe[s] the time, place, and content of the mail . . . communications, and . . . the parties to those communications. Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1328 (7th Cir. 1994) (citing Schiffels v. Kemper Fin. Servs., Inc., 978 F.2d 344, 352-353 (7th Cir. 1992)); Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1020 (7th Cir. 1992); Uni* Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 923-924 (7th Cir. 1992); U.S. Textiles, Inc. v. Anheuser-Busch Cos., 911 F.2d 1261, 1268 n.6 (7th Cir. 1990); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir. 1993); R.E. Davis Chem. Corp. v. Nalco Chem. Co., 757 F. Supp. 1499, 1516 (N.D.Ill. 1990)). However, Rule 9(b)'s requirement that fraud be alleged with particularity is relaxed where facts that the plaintiff would otherwise be required to plead are in the exclusive possession of the defendants. Id. (citing Nelson v. Monroe Regional Medical Ctr., 925 F.2d 1555, 1567 n.7 (7th Cir.), cert. denied, 502 U.S. 903, 116 L. Ed. 2d 236, 112 S. Ct. 285 (1991)); See also, Davis v. Coopers & Lybrand, 787 F. Supp. 787, 793 (N.D.Ill. 1992). Similarly, where a complaint involves allegations of corporate fraud, the particularity requirement may be relaxed where "it is difficult to attribute particular fraudulent conduct to each defendant as an individual." Davis, 787 F. Supp. at 793.

 With respect to the alleged fraud, the plaintiff alleges that: Whitehall has had approximately seventy-five residents on a daily basis; whenever a person becomes a resident, a "Resident Agreement" is signed by that person and/or his/her sponsor; on July 6, 1992, Sol Arenson entered into a Resident Agreement with Whitehall; in the "Resident Agreement" Whitehall promised that Pharmaceuticals would be charged to the residents at the same rate that Whitehall was charged for them; Whitehall distributed a "Schedule of Charges" to its residents and their sponsors which stated that "medications" would be billed to the residents at the current rate Weber charged Whitehall; in July 1992, Whitehall gave Sol Arenson a copy of the "Schedule of Charges" then in effect; Weber, pursuant to an oral agreement with Whitehall, generated two sets of invoices, one which showed the actual amounts that Weber charged Whitehall for Pharmaceuticals and another invoice which, although purporting to show the actual charges incurred by Whitehall, actually showed higher charges.

 In addition, the plaintiff alleges that the purpose of producing the two sets of invoices was to cheat and deceive plaintiff and members of the putative class; that Whitehall used the mails to order Pharmaceuticals from Weber, receive the two sets of invoices from Weber, send payments to Weber, send the allegedly fraudulent invoices to plaintiff and members of the putative class, and receive payments from members of the putative class based in part on the allegedly fraudulent invoices; that shortly after Sol Arenson's death on July 13, 1992, Whitehall mailed a bill to the plaintiff that listed charges of $ 349.76 for Pharmaceuticals purchased for Sol Arenson; that Whitehall also mailed to plaintiff a two page invoice that purported to break-down the Pharmaceutical charges totaling $ 349.76; that the $ 349.76 charge was deducted from a deposit that the plaintiff had given Whitehall; and that the actual amount that Weber charged Whitehall for these Pharmaceuticals, as reflected in an invoice sent by Weber to Whitehall, was $ 284.89.

 The foregoing allegations describe the elements of the alleged fraud with particularity, as required by Rule 9(b). For example, the plaintiff alleges that he received a billing statement from Whitehall shortly after Sol Arenson's death, and that this statement contained charges for Pharmaceuticals that were higher than the charges Whitehall actually incurred. Only where the facts involved are within the exclusive possession of Whitehall does the plaintiff fail to meet the particularity requirement of Rule 9(b). It is specifically for cases like this one ...


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