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Dexia Credit Local v. Rogan

October 9, 2008

DEXIA CREDIT LOCAL, PLAINTIFF,
v.
PETER G. ROGAN, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Dexia Credit Local holds a judgment against Peter Rogan in an amount in excess of $124 million. In August 2008, Dexia filed an ex parte motion for a temporary restraining order and a preliminary injunction, seeking an order freezing and turning over various assets in the United States and abroad that it alleges are Rogan's or in his control or that he fraudulently transferred. In that motion, Dexia alleged that Rogan, in concert with his attorney Fred Cuppy and others, had engaged in a longstanding scheme to hinder Dexia and other creditors from executing against his assets. Dexia filed the motion ex parte based on its allegations that Rogan had taken steps in the past to hinder Dexia from collecting, including evading court orders, and that if he became aware of the motion, Rogan likely would take further steps to evade its intended effect.

Dexia supported the motion with an extensive and voluminous factual and legal submission. The Court initially heard Dexia's counsel in camera, albeit on the record, and made findings that permitted Dexia to submit its materials ex parte. The Court then took Dexia's motion for a temporary restraining order under advisement. On or about September 2, 2008, the Court summoned Dexia's counsel for a further in camera court session. During that session, the Court advised Dexia's counsel that it intended to grant the requested temporary restraining orders and asked counsel to prepare and submit the necessary draft orders. Dexia's counsel did so, and the Court signed the orders on September 4-5, 2008.

The temporary restraining orders the Court entered barred Peter Rogan, his wife Judith Rogan, and Cuppy from directly or indirectly making or allowing transfers or other dispositions of various assets. The orders also froze assets held by certain institutions and entities that, based on Dexia's submissions to the Court, appeared to be within Rogan's effective control. These included assets held by certain trusts established for the benefit of Rogan's children, Brian Rogan, Robert Rogan, and Sara Caitlin Rogan, as well as accounts in which funds the trusts had transferred to the children were held. Those accounts included the children's own accounts at certain banks and brokerage firms.

Rogan's counsel served the temporary restraining orders upon the enjoined individuals and upon the institutions and entities holding the accounts the Court had ordered frozen. Following service of those orders, Brian, Robert, and Sara Rogan each moved to dissolve the orders. Because the orders had been entered ex parte in the first place, they were of limited duration. See Fed. R. Civ. P. 65(b)(2). As a result, Dexia's motion for a preliminary injunction effectively merged with the requests to dissolve the orders. The Court set the matter down for hearing on the motion for preliminary injunction and directed Dexia to post a $50,000 bond, which Dexia promptly did.

Facts

An evidentiary hearing is required on a motion for preliminary injunction only to the extent that the response to such a motion identifies genuine issues of material fact. See In re Aimster Copyright Litig. (Appeal of Deep), 334 F.3d 643, 653-54 (7th Cir. 2003); Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1171 (7th Cir. 1997). "[A]s in any case in which a party seeks an evidentiary hearing, he must be able to persuade the court that the issue is indeed genuine and material and so a hearing would be productive--he must show in other words that he has and intends to introduce evidence that if believed will so weaken the moving party's case as to affect the judge's decision on whether to issue an injunction." Ty, 132 F.3d at 1171. The Rogan children made written submissions to the Court that raised no dispute about the lion's share of Dexia's factual contentions. Rather, the factual component of their submissions focused on their contentions that they are innocent parties who were unfairly harmed by the temporary restraining order and would be unfairly harmed by a preliminary injunction.

The Court first reviews the facts relevant to the appropriateness of enjoining Peter Rogan. The Rogan children have contested none of those facts. Thus, the Court will review them in summary fashion.

In 1989, an entity that Rogan controlled purchased Edgewater Medical Center, a hospital on Chicago's north side. The Rogan-controlled entity managed and administered EMC, and Rogan served as EMC's chief executive officer.

In 1994, EMC was sold to Northside Operating Company. To finance the purchase, Rogan caused the Illinois Health Facilities Authority to issue approximately $41 million in bonds. Though he had sold EMC, Rogan retained control of the hospital after the sale via a series of transactions, and he then caused EMC to enter into management contacts with two entities that he also controlled, Braddock Management LP and Bainbridge Management, Inc. In 1997, Rogan arranged to refinance the bond debt at a lower interest rate, and to this end, in June 1988 he secured a letter of credit from Dexia guaranteeing repayment of the bonds. Dexia contends that both during the due diligence process that led to its issuance of the letter of credit, and after Dexia issued the letter of credit, Rogan defrauded Dexia by concealing that a significant portion of EMC's revenue was obtained by fraudulent means, specifically fraud in connection with claims for Medicare and Medicaid payments.

Eventually EMC's fraud was discovered, and the government suspended Medicare and Medicaid payments to EMC. This caused EMC to suffer financial reverses and, eventually, led Dexia to have to pay $55 million on EMC's behalf to satisfy obligations to bondholders. Dexia was unable to obtain reimbursement from EMC. It thereafter sued Rogan, Braddock Management, and Bainbridge Management for fraud, conspiracy, and other torts. In May 2007, Dexia obtained a default judgment against Rogan and the entities for actual damages of approximately $53 million, punitive damages of approximately $53 million, prejudgment interest of approximately $18 million, and costs of approximately $11,000.

Dexia then instituted proceedings to attempt to collect its judgment. Both before and after entry of the judgment, Dexia met with stalling, resistance, and outright evasion from Rogan and others connected with him. It ultimately obtained documents and other evidence that led it to file, in mid-August 2008, its motion seeking imposition of temporary restraining orders and preliminary injunctions against various persons and entities.

At issue in the present proceedings are trusts that Rogan established for the benefit of his three children. They include three United States-based trusts established in 1992 and three Belize-based trusts established in 1997. In 1992, Rogan's children were ages 14, 11, and 8, respectively. The trusts were initially funded primarily with ownership interests in Rogan-controlled businesses.

When EMC was sold to Northside Operating Company in 1994, the children's trusts, which held stock in a Rogan-controlled entity that owned the hospital, received a total of approximately $4 million from the sale proceeds of $31 million. The trusts also owned entities that, in turn, owned the management companies through which Rogan continued to operate EMC following its sale. During the period when Rogan operated EMC via these entities--1994 through 1997--the children's trusts received millions of dollars in distributions from the entities.

In 2002, the federal government instituted litigation against Rogan under the federal False Claims Act concerning the alleged submission of false Medicare and Medicaid claims for patients referred to EMC. In that case, Judge John Darrah found that in the early 1990's, Rogan entered into a conspiracy with another EMC officer and two physicians to pay the physicians kickbacks and other improper benefits in return for patient referrals. These referrals, in turn, resulted in substantial profits for Rogan. See United States v. Rogan, 459 F. Supp. 2d 692, 700 (N.D. Ill. 2006). Though the government's lawsuit directly concerned particular false claims submitted from 1995 through 2000, Judge Darrah found that "[t]he conspiracy was evident in the early 1990s." Id. Based upon other findings by Judge Darrah, it appears that he concluded the conspiracy began (albeit on an apparently smaller scale) at least as early as 1993, see id. (findings concerning dealings between Roger Ehmen and a Dr. Barnabas)--in other words, before the 1994 sale of EMC to Northside Operating Company that generated proceeds paid to the children's trusts. Judge Darrah found that the government proved that from 1995 through 2000, Rogan caused Edgewater to submit over $19 million in false claims to Medicare and Medicaid. Id. at 727. As indicated earlier, during at least part of that period, the Rogan children's trusts received significant distributions from the entities managing the hospital's operations, whose operations were in turn controlled by Peter Rogan.

Based upon these facts, which the Rogan children do not contest, the children's trusts have been funded, in significant part, with assets that fairly may be considered to be the proceeds of fraud. On the other hand, Dexia does not appear to contend, and it has not shown at this juncture, that all of those funds were the proceeds of fraud.

In its submission in support of its motion for temporary restraining order and preliminary injunction, Dexia offered evidence tending to show that following the establishment and funding of the children's trusts, Rogan continued to exercise control over the trusts and the assets they held. In the current proceedings, the children have not challenged Dexia's contention in that regard. For this reason, the Court, again, reviews this evidence in summary fashion.

First, Rogan's personal attorney, Fred Cuppy, played a direct role in administering the children's trusts. In 1999, Cuppy, in his role as trustee, received on the trusts' behalf a distribution of a little over $1.2 million from Braddock Management LP; immediately caused the trusts to "loan" $1.35 million to Boulevard Management, Ltd.; and Boulevard, via the assistance of Troy Myers (another Peter Rogan attorney), in turn transferred $1.2 million to Rogan himself. This sum was transferred ostensibly to pay off a promissory note, though no documents evidencing the note have surfaced. See Dexia Ex. 349 ¶ 46 & attached Ex. KK. The Court reasonably may infer, and does infer, that Rogan and Cuppy used the children's trusts on this occasion to facilitate a significant payment to Rogan via a circuitous route which, the Court infers, was employed to try conceal payment to Rogan of what amounted to a very large cash distribution from entities in which he had no significant ownership interest of record.

Dexia's evidence also reflects that Rogan controlled and controls certain investments that appeared on the surface to be owned by the children's trusts. These include various real estate developments in Savannah, Georgia. Dexia's evidence also reflects that Cuppy caused the children's trusts and a Bahamian trust established by Rogan to invest in the same Rogan-related enterprises. Indeed, in 2002, Cuppy caused an entity that was, on paper, owned entirely by the children's Belize-based trusts to transfer nearly $1 million to an entity from which Rogan and Cuppy drew money for Rogan's benefit. Finally, Dexia has offered evidence tending to ...


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