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American Senior Communities, L.L.C. v. Burkhart

United States District Court, S.D. Indiana, Indianapolis Division

September 26, 2019

AMERICAN SENIOR COMMUNITIES, L.L.C., Plaintiff,
v.
JAMES BURKHART, DANIEL BENSON, ROGER WERNER, et al. Defendants. JAMES BURKHART, Counter-Claimant,
v.
AMERICAN SENIOR COMMUNITIES, L.L.C., Counter-Defendant.

          ORDER ON MOTIONS TO DISMISS

          Nancy E. Brasel United States District Judge.

         This matter is before the Court on a Motion to Dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6) by Defendant Roger Werner (“Werner”) (Filing No. 75), and a Motion to Dismiss filed by Plaintiff/Counter-Defendant American Senior Communities, L.L.C. (“ASC”) (Filing No. 100). ASC initiated this action in August 2018, alleging that from approximately 2008 through 2015, executive officers and vendors of ASC systematically looted it through a pattern of racketeering activity. The Complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and the Indiana RICO statute, fraud, breach of contract, tort claims, and other state statutory claims. In response to the Complaint, Werner filed a Motion to Dismiss. Defendant James Burkhart (“Burkhart”) filed an Answer to the Complaint and also asserted affirmative defenses and counterclaims.[1] Thereafter, ASC filed a Motion to Dismiss Burkhart’s counterclaims. For the following reasons, the Court denies as moot without prejudice Werner’s Motion to Dismiss and grants ASC’s Motion to Dismiss.

         I. BACKGROUND

         The following facts are not necessarily objectively true, but as required when reviewing a motion to dismiss, the Court accepts as true all factual allegations in the complaint (or the counterclaim), thus the Court draws all inferences in favor of ASC (or Burkhart) as the non-moving party. See Bielanski v. County of Kane, 550 F.3d 632, 633 (7th Cir. 2008) (standard for dismissal of a complaint); Cozzi Iron & Metal, Inc. v. U.S. Office Equip., Inc., 250 F.3d 570, 574 (7th Cir. 2001) (similar standard for dismissal of a counterclaim). This background section is not intended to be a comprehensive presentation of the facts of the case.

         ASC is a privately-owned Indiana company headquartered in Indianapolis. It owns, operates, and manages a variety of extended care facilities, including assisted and independent senior living communities, nursing homes, and skilled living facilities throughout Indiana. The Health and Hospital Corporation of Marion County (“HHC”) holds the health care operating licenses for most of the facilities that ASC manages, and as a result, bears the sole financial and regulatory responsibilities for each of ASC’s facilities. ASC manages seventy-eight skilled nursing homes, four assisted living facilities, and numerous independent housing units on behalf of HHC. ASC and its affiliates employ over 10, 000 employees in providing care to residents and management of its facilities and ASC cares for over 9, 000 residents (Filing No. 1 at 3, 7–8).

         Burkhart was an Indiana resident, and is ASC’s former chief executive officer (“CEO”). He operated ASC from approximately 2000 through September 15, 2015, when the Federal Bureau of Investigation executed search warrants at numerous sites, including Burkhart’s principal residence and his primary office at ASC. Burkhart currently resides at the Federal Prison Camp Montgomery, Maxwell Airforce Base, in Montgomery, Alabama (Filing No. 1 at 3; Filing No. 83 at 30). Werner is an Indiana resident and ASC’s former chief financial officer who worked closely with both Burkhart and co-defendant Daniel Benson (“Benson”), ASC’s former chief operating officer, beginning in 2002. Werner became ASC’s chief financial officer in 2007 (Filing No. 1 at 4). Burkhart, Benson, and Werner never had an ownership interest in ASC and were never on ASC’s board of managers. Id. at 3, 8.

         Burkhart received a salary for his work as ASC’s chief executive officer pursuant to a compensation agreement dated October 10, 2000. The agreement was later restated and further explained in a letter dated October 6, 2003, which was then amended on two subsequent occasions on November 24, 2009 and August 31, 2012 (the “Compensation Agreements”). The November 24, 2009 addendum amended the severance provision to entitle Burkhart to two times, instead of one times, his base salary upon termination and added a “retention bonus, ” to be paid to Burkhart in the event he was terminated “without Cause” or if he resigned. (Filing No. 83 at 30–32). The Compensation Agreements were entered into between Burkhart, ASC, and its owners (the Jackson and Justice families, and their affiliates). The Compensation Agreements define “Cause” as termination due to (i) felony conviction or (ii) misuse of alcohol or drugs which interferes with employment performance. Id.

         Following the September 2015 FBI raid-the execution of search warrants at Burkhart’s principal residence and his primary office at ASC-Burkhart was terminated from his position as ASC’s chief executive officer and on October 4, 2016 he was indicted for several counts relating to fraud, money laundering and violation of the anti-kickback statute. At the time of his termination in 2015, Burkhart had not been convicted of a felony, and he had not been accused of misusing alcohol or drugs, so under his compensation agreements, his termination was without cause. Id. at 32. Pursuant to Burkhart’s Compensation Agreements, he should have been paid various benefits totaling approximately $2, 466, 713.46 at the time of his September 2015 termination. However, ASC and the Jackson and Justice families failed to make these payments to Burkhart at the time of his termination or any time thereafter. Id.

         Burkhart and Benson were the highest-ranking executives at ASC, and they used their positions of trust to limit the number of people who had access to the financial details of their operation. They enlisted their associates to assist them in constructing a racketeering enterprise and executing a series of mail and wire frauds and other racketeering activities. These activities were ongoing over an extended period of time beginning in 2008 and continuing through at least September 15, 2015. Their activities included frauds that required ASC to pay inflated prices for products and services or to pay unnecessary fees to companies secretly owned or controlled by Burkhart, Benson, or their associates and to companies that remitted kickbacks to them; frauds that caused ASC to pay inflated salaries and bonuses to Burkhart, Benson, and Werner and that provided lavish benefits including skyboxes for sporting events, private jets, golf trips, and expensive meals for themselves and their associates at the expense of ASC; fraudulent misdirection of ASC’s corporate opportunities for the benefit of Burkhart, Benson, and their associates; and activities designed to conceal their fraudulent activities (Filing No. 1 at 1–3). These activities were undertaken to defraud ASC continually until the FBI raided ASC’s offices and the homes of several defendants in September 2015. Id. at 14.

         On September 15, 2017, ASC filed this lawsuit against Burkhart, Benson, Werner, and others asserting claims for violations of the federal RICO and Indiana RICO statutes as well as other Indiana statutes. ASC also asserted claims for fraud, breach of fiduciary duty, negligence, breach of contract, and unjust enrichment among other claims. On January 10, 2018, Burkhart pled guilty, and provided a factual basis under oath, to knowingly engaging in a conspiracy to commit mail, wire, and healthcare fraud “with an intent to advance the conspiracy, ” as well as conspiracy to violate the anti-kickback statute and money laundering. (Filing No. 96-1). While under oath, Burkhart stated that the factual basis was the truth and he had nothing to change or correct regarding the factual basis. Id. at 10.

         On December 10, 2018, Werner filed a Motion to Dismiss, asking the Court to dismiss the civil RICO and Indiana RICO claims against him as well as the fraud claim. On December 20, 2018, Burkhart filed an Answer and asserted two counterclaims against ASC for breach of contract and unjust enrichment. On January 22, 2019, ASC filed a Motion to Dismiss Burkhart’s counterclaims.

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) allows a defendant to move to dismiss a complaint that has failed to “state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When deciding a motion to dismiss under Rule 12(b)(6), the Court accepts as true all factual allegations in the complaint and draws all inferences in favor of the plaintiff. Bielanski, 550 F.3d at 633; Cozzi Iron & Metal, 250 F.3d at 574 (similar standard for dismissal of a counterclaim). However, courts “are not obliged to accept as true legal conclusions or unsupported conclusions of fact.” Hickey v. O’Bannon, 287 F.3d 656, 658 (7th Cir. 2002).

         The complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In Bell Atlantic Corp. v. Twombly, the United States Supreme Court explained that the complaint must allege facts that are “enough to raise a right to relief above the speculative level.” 550 U.S. 544, 555 (2007). Although “detailed factual allegations” are not required, mere “labels, ” “conclusions, ” or “formulaic recitation[s] of the elements of a cause of action” are insufficient. Id.; see also Bissessur v. Ind. Univ. Bd. of Trs., 581 F.3d 599, 603 (7th Cir. 2009) (“it is not enough to give a threadbare recitation of the elements of a claim without factual support”). The allegations must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555. Stated differently, the complaint must include “enough facts to state a claim to relief that is plausible on its face.” Hecker v. Deere & Co., 556 F.3d 575, 580 (7th ...


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