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Rehabcare Group, East, Inc v. Camelot Terrace

April 13, 2012

REHABCARE GROUP, EAST, INC., PLAINTIFF,
v.
CAMELOT TERRACE, INC., ET AL. DEFENDANTS.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge:

MEMORANDUM OPINION AND ORDER

On February 17, 2012, Plaintiff RehabCare Group East, Inc. d/b/a RehabCare Group Therapy Services, Inc. ("RehabCare") filed a six-count First Amended Complaint against Defendants Camelot Terrace, Inc. d/b/a Camelot Terrace ("Camelot Terrace"), as well as individual skilled nursing facilities and the owner of these facilities, alleging state law claims of breach of contract (Count I), promissory estoppel (Count II), unjust enrichment (Count III), account stated (Count IV), tortious interference with contracts (Count V), and fraudulent conveyance (Count VI) based on the Court's diversity jurisdiction. See 28 U.S.C. § 1332(a). Before the Court is Defendants' motion to dismiss pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1), (6). For the following reasons, the Court denies Defendants' motion.

LEGAL STANDARDS

I. Rule 12(b)(1)

The standard of review for a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction depends on the purpose of the motion. See Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443-44 (7th Cir. 2009); United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003) (en banc). If a defendant is challenging the sufficiency of the allegations regarding subject matter jurisdiction, the Court must accept all well-pleaded factual allegations as true and draw all reasonable inferences in favor of the plaintiff. See Apex Digital, 572 F.3d at 443-44; United Phosphorus, 322 F.3d at 926. If, however, the defendant denies or controverts the truth of the jurisdictional allegations, the Court may look beyond the pleadings and view any evidence submitted to determine if subject matter jurisdiction exists. See Apex Digital, 572 F.3d at 444; St. John's United Church of Christ v. City of Chicago, 502 F.3d 616, 625 (7th Cir. 2007). "Where jurisdiction is in question, the party asserting a right to a federal forum has the burden of proof, regardless of who raises the jurisdictional challenge." Craig v. Ontario Corp., 543 F.3d 872, 876 (7th Cir. 2008).

II. Rule 12(b)(6)

"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). Under Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L.Ed.2d 80 (1957)). Under the federal notice pleading standards, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Put differently, a "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570). "In evaluating the sufficiency of the complaint, [courts] view it in the light most favorable to the plaintiff, taking as true all well-pleaded factual allegations and making all possible inferences from the allegations in the plaintiff's favor." AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011).

III. Rule 9(b)

In pleading fraud in federal court, Rule 9(b) imposes a higher pleading standard than that required under Rule 8. See Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 446 (7th Cir. 2011). Specifically, Rule 9(b) requires a pleading to state with particularity the circumstances constituting the alleged fraud. See AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011). This "ordinarily requires describing the 'who, what, when, where, and how" of the fraud, although the exact level of particularity that is required will necessarily differ based on the facts of the case." Id. (citation omitted). "Rule 9(b) is designed to discourage a 'sue first, ask questions later' philosophy." Pirelli Armstrong Tire Corp., 631 F.3d at 441 (citation omitted).

BACKGROUND

Plaintiff RehabCare alleges that this lawsuit arises out of Defendants' failure to pay RehabCare for therapy services it provided to the residents of skilled nursing facilities, namely, Camelot Terrace, Regal Health and Rehab Center, Forest Hill Health and Rehabilitation Center, and Galesburg Terrace (collectively "Facility Defendants"). (R. 25, First Am. Compl. ¶ 1.) RehabCare is a Delaware corporation with its principal place of business in St. Louis, Missouri. (Id. ¶ 2.) RehabCare provides therapy services to residents of long-term care and skilled nursing facilities. (Id.) Camelot Terrace is an Illinois corporation with its principal place of business in Chicago, Illinois. (Id. ¶ 3.) Regal Health and Rehab Center, Inc. ("Regal"), Forest Hill Health & Rehab Center, Inc. ("Forest Hill"), Galesburg Terrace, Inc. ("Galesburg"), and Gem Healthcare Management, Inc. ("Gem") are Illinois corporations with their principal place of business in Chicago, Illinois. (Id. ¶¶ 4-7.) Michael Lerner is the principal owner of Gem, Forest Hill, and Galesburg. (Id. ¶¶ 12, 13.) Lerner is a citizen of Illinois and maintains his domicile within the State of Illinois. (Id. ¶ 8.) RehabCare alleges that until mid-2010, Lerner was the principal owner of Camelot Terrace and Regal and that he may still be the owner of these entities, although certain assets of Camelot Terrace and Regal were sold to non-parties in 2010. (Id. ¶ 14.)

RehabCare further alleges that it entered into separate agreements with Camelot Terrace, Regal, Forest Hill, and Galesburg to provide therapy services at these facilities as modified from time to time (hereinafter "Therapy Service Agreements"). (Id. ¶ 15.) RehabCare also asserts that Camelot Terrace purported to terminate its Therapy Services Agreement with RehabCare effective March 31, 2010, but failed to give proper notice and did not have valid cause to terminate the agreement. (Id. ¶ 16.) Thereafter, RehabCare exercised its rights to terminate the Therapy Services Agreements with Regal, Forest Hill, and Galesburg effective May 7, 2010. (Id. ¶ 17.) RehabCare contends that it performed all obligations under the Therapy Services Agreements, submitted monthly invoices, and otherwise satisfied all conditions precedent to payment. (Id.) As such, RehabCare maintains that pursuant to the Therapy Services Agreements with the Facility Defendants and RehabCare's performance thereunder, the Facility Defendants must pay for the services RehabCare provided. (Id. ¶ 18.) Moreover, RehabCare contends that despite repeated demands for the sums due and owing under the Therapy Services Agreements, the Facility Defendants have refused to pay for these services and that the outstanding balance owed is accruing interest under the terms of the Therapy Services Agreements. (Id. ¶ 19.)

Furthermore, RehabCare asserts that it has conferred with Defendants on numerous occasions regarding the outstanding invoices and the amounts past due making repeated demands for payment. (Id. ¶ 20.) During these conferences, Defendants represented to RehabCare that they would pay the outstanding invoices and that Defendants requested that RehabCare continue to provide services in accordance with the Therapy Services Agreements. (Id. ¶ 21.) Despite RehabCare's billing, repeated demands for the sums due, and conferences regarding the amounts outstanding, RehabCare alleges that Defendants failed to pay for RehabCare's services. (Id. ¶ 23.) In addition, RehabCare alleges that upon information and belief, Medicare has reimbursed Defendants for all or a significant portion of these services and that Defendants have directly or indirectly benefitted from this reimbursement. (Id. ¶ 25.)

RehabCare also alleges that during the relevant time-period, Gem managed the Facility Defendants. (Id. ¶ 26.) Upon information and belief, Gem knew of the Therapy Services Agreements between the Facility Defendants and RehabCare, and, without justification, used its management control to cause the Facility Defendants to breach the Therapy Services Agreements and divert funds owed RehabCare solely for Gem's gain or to harm RehabCare. (Id.) RehabCare further alleges that Gem and Lerner so controlled and manipulated the Facility Defendants that the Facility Defendants are mere instrumentalities of Gem and Lerner. (Id. ¶ 27.) RehabCare alleges that Gem's and Lerner's control is evidence by: (1) directing payment of insider debts, including Gem and Lerner and other entities Lerner controlled, before third-party creditors; (2) commingling funds; (3) sharing other assets without a corresponding exchange of value; (4) intentionally undercapitalizing the business in which they were engaged; (5) leveraging unprofitable facilities to ensure that the more profitable facilities remain profitable and available to provide funds to Gem, Lerner, and other insiders; and (6) using the Facility Defendants as business conduits for Gem as the ...


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