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

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

November 19, 2019

JAMES BURKHART, et al., Defendants.



         Defendants James Burkhart and companies with which he has (or had) some affiliation-ACCD LLC d/b/a Crusader Healthcare Services III, American Senior Care LLC, JACCD LLC d/b/a Crusader IV, 105214 Investments LLC d/b/a Crusader Healthcare Services, and 105210 Investments LLC d/b/a Crusader Services II-move to quash a documents subpoena issued by plaintiff American Senior Communities, L.L.C. to law firm Barnes & Thornburg LLP.

         To appreciate the context in which the subpoena was issued and the motion to quash was filed, the court first provides some background about this litigation, a criminal case, and James Burkhart's Section 2255 civil proceeding.

         Procedural Background [1]

         This civil case was filed on September 15, 2017, by American Senior Communities, L.L.C. (“ASC”). ASC owns, operates, and/or manages extended care facilities, including assisted and independent senior living communities, nursing homes, and skilled-living facilities. The Health and Hospital Corporation of Marion County (“HHC”) holds the health care operating licenses for most of the facilities that ASC manages. ASC manages 78 skilled nursing homes, four assisted living facilities, and numerous independent housing units on behalf of HHC.

         ASC has sued James Burkhart (its former chief executive officer), Daniel Benson (its former chief operating officer), Roger Werner (its former chief financial officer), Joshua Burkhart (James's brother, who is or was an owner of companies that did business with ASC and who worked for a CPA firm that provided accounting services to ASC), Steven Ganote (who is or was an owner of businesses that had contracts with ASC to provide services or products), [2] and various entities in which one or more of these individuals had ownership interests and conducted business with ASC.

         ASC contends that the defendants “systematically looted” ASC and defrauded the company of tens of millions of dollars via (a) fraudulent business transactions by which ASC paid inflated prices for products and services to companies associated with one or more of the defendants, (b) fraudulent kickbacks from vendors, (c) fraudulently inflated salaries, bonuses, and perks, and (d) usurpation of business opportunities. Some of the claims brought by ASC have factual predicates that overlap with criminal charges earlier brought in 2016 by the United States against James Burkhart, his brother Joshua, and Messrs. Benson and Ganote.

         Attorneys with Barnes & Thornburg represented James Burkhart in the criminal case, United States v. James Burkhart, et al., No. 1:16-cr-00212-TWP-TAB. Mr. Burkhart eventually pleaded guilty to certain counts (conspiracy to commit mail, wire, and health care fraud, conspiracy to violate anti-kickback statute, and money laundering) and was sentenced on June 29, 2018, to 114 months' imprisonment. See Judgment, Dkt. 287, in No. 1:16-cr-00212.[3] In the criminal case, the court entered a Second Amended Protective Order that, inter alia, restricted the use of all documents produced to the defendants by the United States or any third parties solely for the preparation, trial, direct appeal, and collateral attack (if any) of the case “and for no other purpose whatsoever.” (A copy of the order is at Dkt. 134-2 in this case).

         On December 20, 2018, Mr. Burkhart brought a civil action (No. 1:18-cv-04013-TWP-DLP) against the United States under 28 U.S.C. § 2255, seeking to vacate his convictions and to set aside his sentence because of alleged conflicts of interest of his counsel at Barnes & Thornburg. Mr. Burkhart asserts that (i) an alleged victim of the crimes he was charged with, HHC (the Health and Hospital Corporation of Marion County, which holds the operating licenses for most of the health care facilities managed by ASC), was one of Barnes & Thornburg's long-term clients, (ii) the law firm never disclosed to him its relationship with HHC, and (iii) to his detriment, his defense counsel conducted discovery, made strategy decisions, and gave advice upon which he relied that were all tainted by counsel's loyalties to HHC. Mr. Burkhart's Section 2255 petition contends that because of his attorneys' conflicts of interest, he was deprived of the effective assistance of counsel in violation of the Sixth Amendment.

         In the Section 2255 proceeding, Mr. Burkhart and the United States agreed to the terms of a protective order that was entered by the court on their motion. (A copy is at Dkt. 134-3 in this case). The agreed order includes findings that Mr. Burkhart's Section 2255 motion “constitutes an implied waiver of his attorney-client privilege and work-product protection” for documents and information necessary for the government's defense of the motion and for the litigation of the proceeding, including with respect to documents relating to Barnes & Thornburg's representation and advice in the criminal proceedings and with respect to documents relating to the alleged potential conflicts of interest. The order restricts the use and sharing of the documents to the litigation of the claims in the Section 2255 proceeding.

         The Subpoena

         ASC served an amended documents subpoena on Barnes & Thornburg on April 18, 2019. (Dkt. 134-1). The subpoena seeks all communications between counsel and Mr. Burkhart in connection with the firm's representation of him in the criminal case and a broad range of other documents, generally relating to business and financial relationships between Mr. Burkhart and ASC or HHC. The subpoena excludes from its scope documents the law firm received in discovery from the United States or third parties in the criminal case, i.e., those covered by the Second Amended Protective Order entered November 20, 2017, in Case 1:1-cr-00212.[4] The amended subpoena seeks:

• All documents relating to entities owned by James or Joshua Burkhart, Daniel Benson, or Steven Ganote that did business with ASC or HHC, including organizational documents, communications, contracts, financial records, and bank statements.
• All documents evidencing payments from ASC, HHC, or any entity that did business with ASC or HHC, and to any of the foregoing persons or any entity in which any had an ownership or financial interest.
• All documents evidencing travel to China or business conducted in China by ASC, James Burkhart, Daniel Benson, or Jeff Cooper.
• All documents evidencing ASC's payment of bonuses to James Burkhart, Daniel ...

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