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People ex rel Levenstein v. Salafsky

May 5, 2003

THE PEOPLE EX REL. JOSEPH LEVENSTEIN, PLAINTIFF-APPELLEE,
v.
BERNARD SALAFSKY, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Winnebago County. No. 2000--L--44 Honorable Gerald F. Grubb, Judge, Presiding.

The opinion of the court was delivered by: Justice O'malley

PUBLISHED

This permissive interlocutory appeal (155 Ill. 2d R. 308) requires us to construe the Whistleblower Reward and Protection Act (Act) (740 ILCS 175/1 et seq. (West 2000)). Relator, Joseph Levenstein, M.D., an employee of the College of Medicine-Rockford (College) of the University of Illinois-Chicago (University), filed a qui tam complaint alleging that defendant, Bernard Salafsky, a College dean, violated the Act by knowingly presenting false claims to the University. Salafsky moved to dismiss (see 735 ILCS 5/2--619.1 (West 2000)), arguing that (1) the Act bars only false claims against the "State," which, under section 2(a) of the Act (740 ILCS 175/2(a) (West 2000)), excludes the University; and (2) if the University is the State, section 4(e)(3) of the Act (740 ILCS 175/4(e)(3) (West 2000)) bars the suit because it is based on allegations that are the subject of a pending federal suit.

The trial court declined to dismiss the complaint. The court held first that the complaint states a cause of action under the Act because the College, although not itself the "State," receives significant funding from the State. The court held second that the federal suit, which alleges that Salafsky and other University officers denied Levenstein his constitutional rights when they retaliated for his "whistleblowing" by disciplining him on spurious charges of sexual harassment, is not based on the same allegations or transactions as this action. The trial court denied Salafsky's motion to reconsider but certified two questions for us to decide:

"1. Whether the University of Illinois is covered by the Whistleblower Reward and Protection Act (WRPA) *** and

2. Whether Plaintiff's claim is barred pursuant to Section 175/4(e)(3) [sic] of the WRPA."

For the reasons that follow, we answer the first question with a qualified "yes" and the second question with a simple "no."

The complaint alleges the following background facts. Levenstein has worked for the College since 1990. Salafsky has been the College's regional dean since 1989 and is accountable for its financial operations. The College is funded by various means, including state appropriations. To manage the revenues the faculty's clinical services generate, the University created a "Medical Service Plan" (MSP) per the University of Illinois Hospital Act (110 ILCS 330/0.01 et seq. (West 2000)). Under section 5 of this act (110 ILCS 330/5 (West 2000)), the charges for such services must be deposited into a special fund, and the faculty controls the billing, collection, and disbursement of the money under a plan it has established. To satisfy this directive, the College medical faculty passed bylaws making the head of a department accountable for managing the department's MSP account. According to Associate Dean Terrance Duffey, the only funds that should flow into or out of the MSP are those the MSP has generated.

The complaint continues as follows. In September 1994, over Salafsky's objection, Levenstein and other faculty members formed a management committee to oversee how money in the MSP is generated, collected, and spent. They did so partly because the College MSP was losing money, reporting a deficit of $400,000 in April 1995. Despite this deficit, Salafsky announced that month that he wanted to build a clinic in Rockford. He assured the management committee that the College MSP's deficit was not a problem and that the MSP could count on assistance "from Chicago." Under the heading "Salafsky Circumvents Bidding Process to Build Clinic," the complaint alleges as follows. In June 1995, Salafsky signed a letter of intent with Illinois Health Properties (IHP) to build and lease the new clinic. IHP did not yet exist; signing for it was Brent Johnson, who owned Ringland & Johnson, a construction firm. Later in 1995, Johnson formed IHP, which then contracted to "sell" the University the clinic. IHP hired Ringland & Johnson to build the clinic, thus giving Johnson's firm a no-bid contract. Salafsky never told the trustees or the College MSP about Johnson's interest in IHP or Ringland & Johnson.

Under the heading "The University Overpays for Land and Building," the complaint alleges as follows. Two weeks before signing the contract with IHP, the University, at Salafsky's direction, paid IHP $642,540 for the land for the clinic. On December 18, 1995, the land was conveyed to an intermediary for $92,192 and immediately reconveyed to IHP for $432,000. Associate Dean Duffey stated that the University paid $642,540 for the land and about $1.5 million for construction. The project cost about $3 million in all, but Duffey could not say what the University received for the remaining $900,000 or so.

Under "Salafsky Abuses 'Official' MSP Discretionary Account," the complaint alleges that the MSP bylaws allow Salafsky to maintain one discretionary MSP account, funded solely by a 10% "tax" on the College MSP's revenue. Although this "tax" should yield about $240,000 yearly, the account was credited with $642,540 a day before it paid IHP the same amount as a "down payment" on the clinic. Former University vice-chancellor Dieter Hausmann provided the money to Salafsky and was the "internal bank" pending the receipt of the public bond funds used to finance the clinic.

Under "Balance of Clinic May Have Been Paid More than Once," the complaint alleges as follows. The College's former chief accountant, Brian Grande, stated that, after the University made the down payment, the $2.4 million balance of the project price came from a bond issue " 'through the State,' " not " 'through Rockford.' " However, an official report for the discretionary MSP account states that on December 8, 1996, a charge of $2,302,879 was recorded for " 'purchase price.' " A voucher dated December 11, 1996, states that this amount was paid from the discretionary account to IHP for the final purchase of the clinic. Another official report states that in June 1997 the discretionary account recorded a transfer of $2,455,000 for "buildings acquisition" and a $2,436,695 charge for "plant expenditures." Thus, the $2.4 million due on the clinic was paid not only "directly by [the University] with bond money" but also from the discretionary account in December 1996 and again in June 1997.

Under "University Overpays for Equipment and Furnishings," the complaint alleges that the University spent $504,000 to supply and furnish the clinic. This spending included such excesses as $97,000 for computers and related items; $88,000 for office equipment; and $4,028 for a "customized trash bin."

Finally, under "Salafsky's 'Unassigned' MSP Account," the complaint alleges the following. Although regulations limit him to one MSP account, Salafsky has since 1991 or earlier maintained an "unassigned" MSP account, No. 26--51876, that appears nowhere in the College's official list of its accounts. Salafsky did not tell College MSP members about this account. University records show that between July 1990 and June 1996 account No. 26--51876 had at least $29,400,000 in credits and at least $2,900,000 in charges for vaguely described purposes. Grande said that the unassigned account was only a bookkeeping device, but the monthly University reports for the account show that it was used to transfer funds; that it had significant activity for only 18 months in 5 years; and that the account's balance grew by about $23 million in that time.

Levenstein's complaint asserts that Salafsky is liable under section 3(a)(2) of the Act, which applies to any person who "knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the State." 740 ILCS 175/3(a)(2) (West 2000). The complaint alleges that Salafsky (a) caused the board of trustees to be told that the clinic building could be "purchased" for $3 million, whereas the building had yet to be built and would have cost only about $1.5 million had bids been obtained as required (see 30 ILCS 505/1 et seq. (West 1994)); (b) executed the letter of intent that fraudulently represented IHP as a "seller" or "lessor" of property and not as a contractor that should have bid for the project; (c) caused an inflated $642,540 "down payment" to be made on the land for the clinic; (d) authorized excessive spending on furnishings and equipment for the clinic; (e) caused multiple payments to be made on the $2.4 million balance due on the project; and (f) maintained an illegal "unassigned" MSP account that spent about $3 million on fraudulent charges between 1990 and 1996.

After the State declined to intervene (see 740 ILCS 175/4(b)(4)(B) (West 2000)), Salafsky moved to dismiss the complaint (see 735 ILCS 5/ 2--619.1 (West 2000)) on two grounds. He argued first that the complaint did not state a cause of action because it did not allege that Salafsky had caused any false claim to be paid or approved ...


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