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Angelopoulos v. Keystone Orthopedic Specialists, S.C.

United States District Court, N.D. Illinois, Eastern Division

September 16, 2016



          Robert M. Dow, Jr. United States District Judge

         Nicholas Angelopoulos (“Plaintiff”), an anesthesiologist, brings suit against his former business associate, Martin R. Hall (“Hall”), and the two businesses in which they were associates, Keystone Orthopedic Specialists, SC (“Keystone”), and Wachn, LLC (“WACHN”) (collectively, “Defendants”), for their alleged participation in a fraud to deprive Plaintiff of money to which he was entitled.[1] In his governing Third Amended Complaint [222], Plaintiff alleges claims against Defendants for fraudulently filing an information return in violation of 26 U.S.C. § 7432 (Count One); common law fraud (Count Two); breach of fiduciary duty (Count Three); breach of contract (Counts Five and Six); and unjust enrichment (Count Seven). Plaintiff also seeks a determination of the fair value of his distributional interest pursuant to 805 ILCS § 180/35-65 (Count Four). Defendants bring counterclaims against Plaintiff for breach of the purported WACHN Operating Agreement (Count I) and breach of contract (Count II). Currently before the Court is Defendants' motion for summary judgment [269], which is directed at all counts except Count I of Defendants' counterclaims. For the reasons stated below, Defendants' motion [269] is denied in full. This case is set for further status on September 20, 2016 at 9:15 a.m. Plaintiff's motion to set a trial date [300] will be heard at the same time.

         I. Background

         The Court takes the relevant facts primarily from the parties' Local Rule (“L.R.”) 56.1 statements: (1) Defendants' Local Rule 56.1(a)(3) Statement of Facts [274]; (2) Plaintiff's Local Rule 56.1 Response and Statement of Additional Facts [284]; and (3) Defendants' Response to Plaintiff's 56.1 Statement of Additional Facts [294]. The following facts are undisputed except where otherwise noted.

         Plaintiff and Hall are both medical doctors who reside and are licensed to practice medicine in Illinois. Plaintiff is a board-certified anesthesiologist and Hall specializes in orthopedics. In or around December 2003, Plaintiff met with Hall about joining Keystone as a physician. Keystone is an Illinois professional corporation with its principal place of business in Hazel Crest, Illinois and locations in Hazel Crest and Munster, Indiana. At all times relevant to this opinion, Hall was the president, secretary, and owner of Keystone. Keystone's Schedule K-1s list Hall as the 100% owner of Keystone's shares. The parties agree that Hall controlled Keystone.

         Plaintiff and Hall entered into an oral contract, under which Plaintiff practiced medicine at Keystone from 2004 until late 2007. Two other doctors, Dr. Daniel Weber (“Weber”) and Dr. Mark Chang (“Chang”) also worked at Keystone. Pursuant to their oral agreement, Plaintiff and Hall agreed that Plaintiff would receive $25, 000 per month as a draw and would receive revenues generated by his patient billings plus 25 percent of certain other revenues generated by Keystone, less Plaintiff's percent share of certain expenses, including equipment. The parties dispute whether Keystone purchased certain equipment, purportedly worth $225, 000, for Plaintiff's use or for the use of the practice. When Plaintiff joined Keystone, his share of the expenses was 25 percent; Hall, Weber, and Chang each paid 25 percent, as well. Later in 2004, Plaintiff's share of expenses rose to 26.5 percent as part of an agreement with Hall wherein Hall would pay a reduced 20.5% of the expenses in exchange for handling certain administrative duties for Keystone. The parties dispute whether their oral agreement gave Hall a right to unilaterally change its terms.

         The parties dispute whether Plaintiff was a shareholder or partner in Keystone (as Plaintiff contends) or an employee of Keystone (as Defendants contend). Defendants point to evidence, for instance, that Keystone is an S-Corp, and assert that an S-Corp cannot have partners. Plaintiff points to a variety of documents in the record, including deposition testimony from Plaintiff, Dr. Chang, and Dr. Weber that they thought they were partners in Keystone (Plaintiff's binder of deposition exhibits, Angelopoulos deposition at 155-56; Chang deposition at 8, 27; Weber deposition at 56 (filed under seal)); Dr. Chang's resignation letter demanding that Keystone “repurchase Dr. Chang's 25% interest in Keystone at fair market value” (Plaintiff's binder of document exhibits, Ex. 63 at NA000087 (filed under seal)); a draft shareholder agreement (id. at Ex. 67); Keystone meeting agendas showing discussion of a partnership agreement and shareholder agreement (e.g., id. at Ex. 71); an email discussing changes to the partnership agreement (id. at Ex. 73); and Keystone profit and loss statements showing Hall, Chang, and Weber sharing Keystone's income (id. at Ex. 14).

         The parties also dispute how many other employees Keystone had; Defendants point to deposition testimony that there were 10 to 15, while Plaintiff points to deposition testimony suggesting that the number was substantially higher-for example, Dr. Weber's testimony that he thought there were up to 25 or 30 employees between 2004 and 2007. See Plaintiff's binder of deposition exhibits, Ex. N at 91 (filed under seal).

         In 2004, Weber, Plaintiff, Chang, Hall, and Dr. Phillip Narcissi (“Narcissi”) formed an Illinois limited liability company called WACHN. At all times relevant to this opinion, Hall was managing member of WACHN. Each of the five physicians was a 20 percent member of WACHN. The parties dispute whether Plaintiff ever entered into a valid operating agreement with WACHN. Plaintiff acknowledges that a draft “WACHN Operating Agreement” was prepared, but disputes that he agreed to or signed a draft. Instead, Plaintiff contends that his signature was forged in a draft (in part using signature stamps kept by Hall's secretary) and disputes the veracity of deposition testimony from bank employee Anthony Carollo (“Carollo”) about witnessing the execution of the WACHN Operating Agreement.

         WACHN purchased medical condominiums in Hazel Crest, Illinois, using two promissory notes and a mortgage in the total amount of $1, 448, 000 from Great Lakes Bank. WACHN also obtained a $593, 740 construction loan from Great Lakes Bank to build out the space. In order to obtain the mortgage and promissory notes, each of the Keystone physicians was required to contribute $110, 000 and to sign a personal guaranty for the entire amount of the loan. Plaintiff and the other physicians complied with these requirements, and WACHN obtained the mortgage and construction loan. The parties dispute whether, in order to obtain the loan, Hall represented to the bank that Plaintiff and the other physicians were each 25 percent owners in Keystone.

         Around 2006, each of the physicians at Keystone was required to contribute $100, 000 to a “cash reserve” in Keystone's account at Great Lakes Bank. The parties dispute the purpose of this contribution. Defendants contend that it was necessary to avoid paying checking fees to Great Lakes Bank, while Plaintiff points to evidence that the $100, 000 from each physician was a capital contribution for ownership shares in Keystone. Hall agreed with the other three physicians that once their respective share of the “cash reserve” equaled $100, 000, net revenues generated from patient billings and non-physician revenues over and above their respective share of expenses would cease going into cash reserves and would be distributed to each of the Keystone physicians.

         Pursuant to its oral agreements with the physicians, Keystone calculated the amount that each physician was supposed to receive after subtracting his share of expenses from his patient billings and cut of other Keystone revenues. The parties dispute who was primarily responsible for making allocation decisions of income and expenses among the Keystone physicians. Plaintiff contends that Hall and his family members made all decisions and refused to provide him and the other physicians with any documentation backing up the allocations. Defendants contend that Karen Balata (“Balata”) and Debbi Aprati (“Aprati”), neither of whom are relatives of Hall, were the Keystone billing and collection employees responsible for making allocation decisions.

         Keystone prepared profit and loss statements (which the parties also refer to as “bucket reports”) to support their allocation decisions. Hall and Merritt Roalsen (who was Keystone's practice manager and Hall's brother-in-law) distributed Keystone's profit and loss statements to Plaintiff, Weber, and Chang on a quarterly basis. The statements were discussed at quarterly meetings attended by the physicians. Plaintiff questioned certain categories of expenses in the statements. Plaintiff contended that Defendants did not provide appropriate justifications or backup documentation for expenses including but not limited to advertising; automobile expenses; donations; insurance; legal fees; office equipment; payroll taxes; and moving expenses. Plaintiff also disputed whether he received credit for all of his patient billings.

         In 2007, Chang and Weber resigned from Keystone and dissociated from WACHN. Both reached agreements with Hall for any amounts that they were owed from Keystone and WACHN. When Chang left Keystone, Keystone increased Plaintiff's share of expenses to 34.8 percent. Plaintiff disputes that this increase was provided for in the parties' oral contract or that he ever agreed to the increase.

         On October 10, 2007, Plaintiff gave Hall a letter stating that effective October 1, 2007, he would “no longer bill under the Keystone Orthopedic Specialists tax ID number, ” that he would “continue to practice within the space owned by WACHN as [he would] continue to be a WACHN member, ” and that he would “continue to use the office equipment, including X-ray and fluoroscopy equipment, as [he had] contributed to the purchase of this equipment.” [284] at 15. Plaintiff practiced in WACHN's building until approximately November 30, 2007, at which time he vacated the building. The parties dispute whether there was any agreement under which Plaintiff would pay for expenses associated with using Keystone's equipment from October 10 to November 30. Plaintiff did not provide written notice that he was dissociating from WACHN, but contends that he provided oral notice two or three weeks after he left Keystone. Hall testified at his deposition as WACHN's corporate representative that he considered Plaintiff to have dissociated himself from WACHN.

         Following his dissociation, Plaintiff was not removed or released from personal liability as a guarantor of WACHN's building loan from Great Lakes Bank.

         Around March 3, 2008, Hall provided Plaintiff with a hand-written tabulation showing that Plaintiff had an alleged “expense debt” to Keystone in the amount of $151, 769.02. Hall applied Plaintiff's $110, 000 equity investment in WACHN to the alleged expense debt and offered to “forget” the remaining $40, 769.02 that Plaintiff allegedly owed if Plaintiff would sign over his interest in WACHN to Hall. The parties dispute whether ...

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