Angelopoulos v. Keystone Orthopedic Specialists, S.C. et al
Filing
365
MEMORANDUM OPINION AND ORDER Signed by the Honorable Robert M. Dow, Jr. on 5/16/2017. Mailed notice(cdh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DR. NICHOLAS ANGELOPOULOS,
Plaintiff,
v.
KEYSTONE ORTHOPEDIC
SPECIALISTS, S.C., WACHN, LLC,
and MARTIN R. HALL, M.D.,
Defendants.
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Case No. 12-cv-5836
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
Before the Court are Plaintiff’s Daubert motion to bar certain expert testimony by
Michael Pakter [314], Defendants’ Daubert motion to bar certain expert testimony by Jay
Sanders [309], Plaintiff’s motions in limine [326] and [339], Defendants’ motions in limine
[317], and Defendants’ motion to amend the final pretrial order to include proposed
supplemental agreed voir dire questions and contested jury instructions [352]. For the reasons
set forth below, Plaintiff’s Daubert motion (Plaintiff’s motion in limine No. 1) to bar expert
testimony by Michael Pakter [314] is granted in part and denied in part. Defendants’ Daubert
motion to bar certain expert testimony by Jay Sanders [309] is denied.
Plaintiff’s motions in limine [326] are granted in part and denied in part: the Court grants
Plaintiff’s motions Nos. 3 and 4; the Court denies Plaintiff’s motion No. 5; and the Court
provisionally denies Plaintiff’s motion No. 2. Plaintiff’s motion in limine No. 7 [339] is granted.
Defendants’ motions in limine [317] are granted in part and denied in part: the Court grants
Defendants’ motions Nos. 6 and 8; the Court denies Defendants’ motions Nos. 1, 5, 7, 10, and
11; the Court reserves its ruling on Defendants’ motion No. 4, and the Court provisionally grants
Defendants’ motions Nos. 2 and 3.1 Defendants’ motion to amend the pretrial order [352] is
granted, and the Court will consider the proposed voir dire questions and jury instructions that
the parties submitted to the Court on May 12, 2017. The Court will issue rulings on Plaintiff’s
motion in limine No. 6 [326, at 10] and Defendants’ motion in limine No. 12 [350] in a separate
order. A final pretrial conference is set for May 18, 2017 at 10:00 a.m. This case remains set for
a jury trial to commence on May 23, 2017.2
I.
Background
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, S.C. (“Keystone”), and Wachn, LLC (“WACHN”)
(collectively, “Defendants”), for their alleged participation in a fraud to deprive Plaintiff of
money to which he was entitled.3 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 I); common law fraud (Count II); breach of fiduciary duty (Count III);
breach of contract (Counts V and VI); and unjust enrichment (Count VII). 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). On September 16,
The Court previously granted in part and denied in part Defendants’ motion in limine No. 9 and denied
as moot witness Dr. Michael Hartman’s motion to quash subpoena [360]. [364.]
1
2
As a reminder, the parties are to submit by 12:00 noon on May 19, 2017 a chart of objections to exhibits
that takes into consideration the Court’s rulings on the motions in limine; the chart should contain the
exhibit number, a short description of the exhibit, the objection, and the response to the objection.
Plaintiff is to submit a binder of Plaintiff’s disputed trial exhibits; the Court already has copies of
Defendants’ disputed trial exhibits, so no additional copies are necessary unless new objections are raised.
3
Ira K. Dubin and Ira K. Dubin Ltd. d/b/a Green Dubin & Co. were also named as defendants in this
action, but were dismissed from the case with prejudice on September 10, 2014. [See 191.]
2
2016, the Court denied Defendants’ motion for summary judgment, noting that many facts were
in dispute. [303.]
II.
Daubert Motions [314] and [317]
A.
Legal Standard
Federal Rule of Evidence 7024 and the Supreme Court’s decision in Daubert v. Merrell
Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), provide the legal framework for the
admissibility of expert testimony. C.W. ex rel. Wood v. Textron, Inc., 807 F.3d 827, 834 (7th
Cir. 2015).
The purpose of the Daubert inquiry is to scrutinize proposed expert witness
testimony to determine whether it has “the same level of intellectual rigor that characterizes the
practice of an expert in the relevant field” so as to be deemed reliable enough to present to a jury.
Lapsley v. Xtek, Inc., 689 F.3d 802, 805 (7th Cir. 2012) (quoting Kumho Tire Co. v. Carmichael,
526 U.S. 137, 152 (1999)). Rule 702 requires the district court judge to act as a gatekeeper to
ensure that admitted expert testimony is relevant, reliable, and has a factual basis. Id. at 809; see
also Daubert, 509 U.S. at 589. The Seventh Circuit has stressed that “the key to the gate is not
the ultimate correctness of the expert’s conclusions. Instead, it is the soundness and care with
which the expert arrived at her opinion[.]” Textron, 807 F.3d at 834 (citation and internal
quotation marks omitted) (alteration in original).
To determine whether expert testimony is admissible, the district court must ascertain
(1) whether the expert is qualified, (2) whether his methodology is scientifically reliable, and
(3) whether the testimony will assist the trier of fact to understand the evidence or to determine a
4
Federal Rule of Evidence 702 states:
A witness who is qualified as an expert by knowledge, skill, experience, training, or
education may testify in the form of an opinion or otherwise if: (a) the expert’s scientific,
technical, or other specialized knowledge will help the trier of fact to understand the
evidence or a determine a fact in issue; (b) the testimony is based on sufficient facts or
data; (c) the testimony is the product of reliable principles and methods; and (d) the
expert has reliably applied the principles and methods to the facts of the case.
3
fact in issue. Bielskis v. Louisville Ladder, Inc., 663 F.3d 887, 893 (7th Cir. 2011). “The
proponent of the expert bears the burden of demonstrating that the expert’s testimony would
satisfy the Daubert standard.” Lewis v. CITGO Petroleum Corp., 561 F.3d 698, 705 (7th Cir.
2009). Daubert sets forth the following non-exhaustive factors for the district court to consider
when assessing an expert’s methodology: (1) whether the theory has been or is capable of being
tested; (2) whether the theory has been subjected to peer review and publication; (3) the theory’s
known or potential rate of error; and (4) the theory’s level of acceptance within the relevant
community. Daubert, 509 U.S. at 593–94; see also Bielskis, 663 F.3d at 893. However, the test
for reliability is flexible, and “the law grants a district court the same broad latitude when it
decides how to determine reliability as it enjoys in respect to its ultimate reliability
determination.” Kumho Tire Co., 526 U.S. at 142; see also United States v. Pansier, 576 F.3d
726, 737 (7th Cir. 2009) (noting that the Seventh Circuit “gives the [district] court great latitude
in determining not only how to measure the reliability of the proposed expert testimony but also
whether the testimony is, in fact, reliable”). In addition, the touchstone of admissibility under
Rule 702 is helpfulness to the jury. United States v. Benson, 941 F.2d 598, 604 (7th Cir. 1991).
An expert’s opinion is helpful only to the extent the expert draws on some special skill,
knowledge, or experience to formulate that opinion. Id. “An expert witness is not permitted to
parrot what some lay person has told him and testify that he believes the person was being
truthful.” Goldberg v. 401 N. Wabash Venture LLC, 755 F.3d 456, 461 (7th Cir. 2014); see also
Benson, 941 F.2d at 604 (“[T]he jury does not need an expert to tell it whom to believe, and the
expert’s ‘stamp of approval’ on a particular witness’ testimony may unduly influence the jury.”).
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B.
Analysis
Many of the liability and damages issues in this case center on the accounting records
kept by Defendants Keystone and WACHN under the supervision of Defendant Hall. Plaintiff
and Defendants have hired experts to assess whether Defendant Keystone’s profit and loss
statements and Form 1099-MISC contained false or fraudulent information and expenses, as
Plaintiff contends, or instead accurately disclosed Defendant Keystone’s income and expenses
and calculated Plaintiff’s share of the same, as Defendants contend. As the Court noted in its
summary judgment opinion, the experts disagree on almost everything, including basic factual
predicates, which accounting methodology is appropriate to use, whether certain of Defendant
Keystone’s expenses were properly disclosed to the physicians, whether those expenses were
reasonable, and whether those expenses were properly attributed to Keystone rather than the
other companies owned by Defendant Hall.
1.
Defendants’ Challenge to Certain Testimony by Jay Sanders [309]
Plaintiff retained as an expert Jay Sanders, an accountant with 30 years of experience
providing accounting services to medical practices. Defendants move to bar three of Sanders’s
opinions: Opinion No. 5 in Sanders’s expert report, which values Plaintiff’s purported interest in
WACHN; Opinion No. 6, which discusses WACHN’s failure to remove Plaintiff from his
personal guarantees of the WACHN loan; and Opinion No. 3, which states that Plaintiff was
wrongly charged $599,168 for excess overhead as compared to industry norms.
a.
Opinion No. 5: Valuation of Plaintiff’s Interest in WACHN
In his Opinion No. 5 “Damages Associated with WACHN, LLC,” Plaintiff’s expert
Sanders valued Plaintiff’s purported interest in WACHN using three different methods: (1) the
initial equity approach; (2) the income approach; and (3) the cost approach. Defendants take
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issue with Sanders’s use of the income approach, arguing that for purposes of this approach,
Sanders impermissibly relied on information provided by Gary Fazio, Vice Chairman of CBRE
Group, Inc. According to Sanders, the “income approach is the most commonly used method for
appraising commercial and industrial real estate based on the net income the property produces
to an investor.” [309-1 (Sanders’s Expert Report), at 43.] He explained in his expert report that
the income approach is computed by taking the Net Operating Income of a real estate asset
(collected rent minus operating expenses) and dividing it by the capitalization rate, which is the
rate of return a prospective investor is expecting given the current health of the economy, interest
rates, geographical area, and other factors.
Sanders stated in his report that Fazio told him that (1) the net rental rate of the building
in which WACHN is located was $15 to $17 per square foot per year, (2) the most recent
operating expenses, including common area maintenance and real estate taxes, were $13 per
square foot per year, and (3) the capitalization rate for medical office buildings in the Chicago
area was 6%, but that the capitalization rate should be increased by 1% because the building is
located in Hazel Crest, and it should be further increased by another 1% because the WACHN
space is a condominium unit and not a fee simple transaction. [309-1, at 44.] Using these
figures and the income approach, Sanders concluded that the equity value of the building was
just under $954,000 and Plaintiff’s purported interest in WACHN is worth $191,000.
First, Defendants argue that it is unclear what Fazio relied on to provide Sanders with
figures for the net rental rate, recent operating expenses, and current capitalization rate for
medical office buildings in the Chicago area. Defendants contend that Sanders improperly relied
on Fazio’s figures without doing any independent research or otherwise verifying the figures and
neglected to consider differences between medical office suites. Second, Defendants argue that
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Sanders impermissibly opined that the income approach is the “most widely used and accepted
valuation standard for commercial real estate,” but that Sanders did not explain how he reached
such an opinion and admitted that he himself has never done any real estate appraisal work and
does not have a real estate appraisal license. Third, Defendants challenge Sanders’s conclusion
that the income method he used was “based on very recent information [from Fazio] regarding
the prevailing rental rates, operating expenses, and capitalization rates for that building, locale
and economic environment,” without indicating what dates or years the rates are based on.
The Court is not convinced by Defendants’ arguments. An expert “may base an opinion
on facts or data in the case that the expert has been made aware of or personally observed.” Fed.
R. Evid. 703. In fact, “it is common in technical fields for an expert to base an opinion in part on
what a different expert believes[.]” Dura Automotive Sys. of Indiana, Inc. v. CTS Corp., 285
F.3d 309, 613 (7th Cir. 2002). For example, a physician, though not an expert in radiology, may
rely on an x-ray in formulating a diagnosis. See Loeffel Steel Prods., Inc. v. Delta Brands, Inc.,
387 F.Supp.2d 794, 808 (N.D. Ill. 2005). Further, “it is apparent from the wording of Rule 703
that there is no general requirement that the other expert testify as well.” Dura, 285 F.3d at 613;
see also Walker v. Soo Line R. Co., 208 F.3d 581, 589 (7th Cir. 2000) (explaining that “[m]edical
professionals have long been expected to rely on the opinions of other medical professionals in
forming their opinions” and that “courts frequently have pointed to an expert’s reliance on the
reports of others as an indication that their testimony is reliable”).
However, expert testimony relying on the opinions of other should be rejected if the
testifying expert’s opinion is too speculative or if the underlying basis is faulty. Walker, 208
F.3d at 588. Further, “while Rule 703 was intended to liberalize the rules relating to expert
testimony, it was not intended to abolish the hearsay rule.” Loeffel Steel Prods., Inc., 387
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F.Supp.2d at 808. Thus, an expert is “not permitted to be the mouthpiece of [an expert] in a
different specialty,” Dura Automotive Sys. of Indiana, Inc., 285 F.3d 309, or to vouch for the
truth of what another expert told him, Loeffel Steel Prods., Inc., 387 F.Supp.2d at 808. Under
Rule 703, an expert may rely on hearsay in formulating his opinion, but the underlying hearsay is
not admissible for the truth of the matter asserted. Loeffel Steel Prods., Inc., 387 F.Supp.2d 7at
808.
The Court concludes that Sanders permissibly relied on figures provided by Fazio, Vice
Chairman of CBRE, one of the largest commercial real estate brokers in the United States, who
has participated in more than 3,000 lease transactions and whose clients include hospitals and
medical staff members. See Walker, 208 F.3d at 589 (holding that expert physician’s opinion
was not rendered unreliable by her partial reliance on another doctor’s work and explaining that
“[t]o the degree that she might have relied on faulty information, the matter certainly could be
explored on cross-examination”); Main St. Mortg., Inc. v. Main St. Bancorp., Inc., 158 F. Supp.
2d 510, 516 (E.D. Pa. 2001) (holding that expert Certified Public Accountant’s use of
capitalization rate that defendant objected to did not destroy the reliability of expert’s opinions
that that defendant was free to challenge expert’s method for calculating lost profits through
cross examination and through its own damages expert). Further, Plaintiff asserts in his response
that Defendant Hall and certain other witnesses affiliated with Keystone, including Renee
Breese, may be able to testify to the rental income and capitalization rate of the WACHN
building. Plaintiff also asserts that he will present at trial, separate from Fazio’s data, evidence
about WACHN’s operating expenses and the rental income paid to WACHN through Keystone.
If this evidence is indeed presented at trial, it may serve to either confirm or refute the figures
used by Sanders for his valuation.
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Sanders may use the figures provided by Fazio to offer an opinion within Sanders’s
domain of expertise in valuation—that is, he can testify that assuming a net rental income of $16
per square foot, operating expenses of $13 per square foot, and a capitalization rate of 8%, the
equity value of the building would be just under $954,000 and Plaintiff’s share would be worth
$191,000. However, he cannot vouch for the accuracy of Fazio’s figures for the net rental rate of
the building, the most recent operating expenses, and the capitalization rate for medical office
buildings in the Chicago area. In other words, Sanders cannot act as Fazio’s spokesman. See In
re James Wilson Assocs., 965 F.2d 160, 172–173 (7th Cir. 1992) (explaining that the expert
architect could use what a consulting engineer told him to offer an opinion within the architect’s
domain of expertise, but he could not testify for the purpose of vouching for the truth of what the
engineer had told him); Dura Automotive Sys. of Indiana, Inc., 285 F.3d at 613 (if affidavits of
experts had timely been filed, expert hydrogeologist could have testified that well field was
contaminated by volatile organic compounds and that if defendant’s plastics plant was within the
well field’s capture zone, some of the contaminants may have come from that plant; however,
hydrogeologist could not testify that plant was actually within well field’s capture zone, as he
was not an expert in mathematical models of groundwater flow and modeling on which he relied
had been done by other non-testifying experts).
Additionally, to the extent that Defendants challenge Sanders’s qualifications on the basis
that he has not done real estate appraisal work and does not have a real estate appraisal license,
this argument fails because Sanders is a Certified Public Accountant and a Certified Valuation
Analyst. As an expert in business valuation, he is sufficiently qualified to offer an opinion as to
the valuation of the WACHN business. See Fed. R. Evid. 702 (an expert may be qualified “by
knowledge, skill, experience, training, or education”); Indus. Hard Chrome, Ltd. v. Hetran, Inc.,
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92 F. Supp. 2d 786, 794 (N.D. Ill. 2000) (certified public accountant who specialized in business
valuation was qualified to testify as an expert on the issue of damages in breach of contract suit).
Sanders’s admitted lack of specialization in real estate appraisal work is not a disqualifying
factor; rather, it is yet another subject for cross-examination. See Walker, 208 F.3d at 589
(holding that district court abused its discretion in excluding expert testimony that employee had
suffered post-traumatic stress disorder and explaining that although expert physician was not a
psychiatrist or psychologist, she was qualified as a physician); Loeffel Steel Prod., Inc., 387 F.
Supp. 2d at 802 (business appraiser’s lack of specific experience with particular machines did
not disqualify him from being considered an expert to offer opinion on economic loss).
Finally, Defendants challenge for the first time in their reply brief Sanders’s use of the
initial equity approach and the cost approach. However, arguments raised for the first time in a
reply brief are waived. See United States v. Hughes, 970 F.2d 227, 235, n.6 (7th Cir. 1992)
(arguments raised for the first time in a reply brief are waived); Forsythe v. Rosen Med. Grp.,
LLC, 2015 WL 127921, at *5 (N.D. Ill. Jan. 8, 2015) (denying motion in limine and explaining
that argument raised for the first time in reply brief and not argued in initial motion was waived).
Further, even if the Court were to consider these arguments on the merits, they are
underdeveloped and do not cite any authority. Therefore, Defendants’ motion to bar Plaintiff’s
expert Sanders’s Opinion No. 5 “Damages Associated with WACHN, LLC” is denied.
b.
Opinion No. 6: WACHN Guarantee
In Defendants’ Daubert motion [309] and motion in limine No. 11 [317, at 12],
Defendants seek to bar Opinion No. 6 of Plaintiff’s expert Sanders on the ground that he uses an
unreliable methodology. Defendants contend that Sanders’ Opinion No. 6 attributes Great Lakes
Bank’s refusal to remove Plaintiff as a personal guarantor of the WACHN $1.42 million loan
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balance to the actions of Defendant Hall. To reach his opinion, Sanders relies on (1) his review
of two commercial guarantees signed by Plaintiff with Great Lakes Bank, (2) the bank
statements of Great Lakes Bank regarding the status of the loans as of January 2, 2014; and (3)
his own “involvement with other medical practices.” Defendants argue that Sanders premised
his opinion on the fact that Plaintiff dissociated from WACHN but that Sanders was in fact
unsure if Plaintiff had actually dissociated.
Defendants’ motion to bar Sanders’s Opinion No. 6 is denied. The Court agrees with
Plaintiff that Defendants misapprehend Sanders’s opinion. Sanders did not opine that Defendant
Hall “was to blame for Plaintiff not being removed from his personal WACHN guarantees.”
[317, at 12.] Rather, Sanders stated his opinion that (1) “a dissociated physician who is no
longer entitled to the income or ownership of a medical building partnership should be released
from all liabilities associated with the investments,” (2) that “WACHN should have procured a
release of Plaintiff’s personal guaranty of the WACHN loan,” and (3) “the damage to [Plaintiff]
is the full extent of the available credit on the loan.” Additionally, Defendants have not shown
that Sanders’s reliance on his review of commercial guarantees and bank statements of Great
Lakes Bank amounts to improper methodology. See Fed. R. Evid 703 (“An expert may base an
opinion on facts or data in the case that the expert has been made aware of or personally
observed.”); Artunduaga v. Univ. of Chicago Med. Ctr., 2016 WL 7384432, at *5 (N.D. Ill. Dec.
21, 2016) (“[I]t is proper for counsel to furnish factual assumptions to experts as long as the
factual assumptions are supported by the record.”). Finally, Defendants’ argument for excluding
Sanders’ testimony on the guarantee because he was unsure if Plaintiff had actually dissociated
from WACHN fails, as this goes to weight and not admissibility.
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c.
Opinion No. 3: Excess Overhead Charges
In Defendants’ motion No. 11, they challenge Sanders’s opinion No. 3 that Plaintiff was
wrongly charged $599,168 for excess overhead, as compared to industry norms. Defendants
argue that Sanders’ reliance on Medical Group Management Association (“MGMA”) statistics
for this opinion was problematic for three reasons: (1) Sanders compared the average expenses
for orthopedic surgeons in the MGMA Physicians Compensation and Production Survey for
Single Specialty Practices 2008 Report to the actual expenses of Keystone from 2004 to 2007,
yet Plaintiff was not an orthopedic surgeon, and pain management specialists like Plaintiff
generate less revenue than orthopedic surgeons; (2) the MGMA data Sanders used was the
national mean for all single-specialty orthopedic surgery practice, and the national mean will be
different from an orthopedic surgery practice in Illinois; (3) the MGMA recommends using
caution in interpreting its data because the data may not be representative of all providers in
medical practices. Additionally, Defendants take issue with the fact that Sanders conceded that a
deviation from an industry norm is not per se evidence of wrongdoing or problems with the
accounting systems.
Defendants’ motion to bar Sanders’s Opinion No. 3 is denied. Defendants have not
shown that Sanders’s method in calculating Plaintiff’s excess overhead charges was unreliable.
Rather, Defendants merely challenge the accuracy of the statistics on which Sanders relied.
Experts “may rely properly on a wide variety of sources,” Cooper v. Carl A. Nelson & Co., 211
F.3d 1008, 1020 (7th Cir. 2000), and may rely on “experimental, statistical, or other scientific
data generated by others in the field,” Abbott Labs. v. Sandoz, Inc., 743 F. Supp. 2d 762, 793–94
(N.D. Ill. 2010). As the Seventh Circuit has stressed, the focus of a Daubert inquiry is “not the
ultimate correctness of the expert’s conclusions,” but rather “the soundness and care with which
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the expert arrived at her opinion[.]” Textron, 807 F.3d at 834 (citation and internal quotation
marks omitted) (alteration in original). To the extent that Defendants disagree with the statistics
used by Sanders and the outcome of his calculation, these arguments go to the weight of
Sanders’s testimony, and not admissibility. Thus, Defendants are free to explore these issues on
cross-examination at trial. See Smith v. Ford Motor Co., 215 F.3d 713, 718 (7th Cir. 2000)
(“The soundness of the factual underpinnings of the expert’s analysis and the correctness of the
expert’s conclusions based on that analysis are factual matters to be determined by the trier of
fact.”).
2.
Plaintiff’s Challenge to Certain Testimony of Michael Pakter [314]
Plaintiff seeks to preclude the testimony of Defendants’ expert, Michael Pakter. To begin
with, Plaintiff argues that much of Pakter’s testimony will not provide specialized knowledge
that would assist the jury in understanding the facts at issue, but rather would simply repeat the
factual contentions of Defendant Hall and his associates.
According to Plaintiff, Pakter’s
testimony purports to resolve issues of credibility of competing witness testimony, which
invades the province of the jury and does not involve any expertise. In addition, Plaintiff
contends that some of Pakter’s testimony purports to advance legal opinions that would impinge
upon the Court’s role as the sole source of the relevant law in this case.
The Court agrees with Plaintiff that many of Pakter’s proffered opinions merely parrot
what Defendants have told him about disputed facts or offer opinions that state legal conclusions.
As explained above, an opinion witness cannot simply vouch for the testimony of a fact witness.
Nor can an opinion witness interview various fact witnesses, sift through their statements, and
then purport to tell the jury what those witnesses meant, understood, believed, or agreed to.
And the Seventh Circuit has explained that in considering whether an expert witness’s testimony
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will improperly invade the judge’s role as the sole source of the relevant law at a trial, courts and
parties must recognize the difference between “stating a legal conclusion” (which is not
permitted) and “providing concrete information against which to measure abstract legal
concepts” (which is permitted). United States v. Blount, 502 F.3d 674, 680 (7th Cir. 2007); Bone
Care Intern., LLC v. Pentech Pharma., Inc., 2010 WL 3928598, at *14 (N.D. Ill. Oct. 1, 2010).
As set out below in detail, in numerous instances the opinions expressed in Pakter’s report, if
repeated in court, would infringe upon the role of the jury, the Court, or both.
However, some of the challenged portions of Pakter’s report properly provide the factual
assumptions on which Pakter relies for his expert opinions and thus provide context for
presenting those opinions for the jury’s consideration. The Court sets out below its rulings on
the specific challenges:
5
Plaintiff’s objection No. 1 (page 16) is overruled.5 Plaintiff takes issue with part of
Pakter’s rebuttal of Sanders Opinion No. 1 in which Pakter states: “The revenues and
expenses of the MDSC were purposely and deliberately disclosed to [Plaintiff] and other
physicians when they were included in the Bucket Reports. * * * Based on my
Interviews, [Plaintiff] and other physicians routinely reviewed the Bucket Reports and
requested adjustments, which they were then made with revised Bucket Reports
provided.” However, this statement provides part of the factual assumptions on which
Pakter relied for his conclusion that followed: “Consequently, when presented quarterly
to Hall, [Plaintiff] and others [the Bucket Reports] disclosed reliably, openly and
completely all the revenues and expenses of the ‘consolidated entity’ for that financial
quarter.” These statements provide context for Pakter’s explanation of his opinion that
“Sanders elected to call certain deliberate and necessary differences between QuickBooks
and the Bucket Reports errors when they were purposefully only reconciling items.”
[314 Exhibit A (Pakter’s Expert Report), at 13.]
Plaintiff’s objection No. 2 (page 17) is overruled. Plaintiff challenges Pakter’s statement
that “Hall represented to me that [Plaintiff] was provided with all of the information
and/or documentation he requested.” However, this statement supports Pakter’s opinion
that “Sanders failed to acknowledge that [Plaintiff] and others were provided access to
the accounting system and proper summaries thereof,” [314 Exhibit A, at 13]. Further, it
was in response to Sanders’s opinion that “[t]here was also a lack of transparency in the
accounting in that the other physicians were not provided backup for the items in the
The Court is referring to the numbered objections attached as Exhibit 1 to this opinion.
14
Bucket Report and did not have access to this information as the majority of Keystone’s
financial records and invoices were maintained at [Defendant Hall’s] personal residence
rather than at the Keystone’s offices.” [301-1 (Sanders’s Expert Report), at 16.] As
noted above, the experts in this case may only testify as to the facts on which they relied
in formulating their opinions; they may not vouch for the accuracy of those facts.
Presumably, each side will call fact witnesses (including Defendant Hall), who will
testify to (and be cross-examined on) these underlying facts.
Plaintiff’s objection No. 3 (page 18) is sustained. These statements do no more than
parrot facts that Defendants provided to Pakter. Additionally, Pakter’s conclusion that
“there are no assertions that [Plaintiff] was not credited with his revenues and billings” is
improper, as that is an issue for the jury to decide at trial based on the testimony of the
fact witnesses.
Plaintiff’s objection No. 4 (page 20) is sustained. These statements simply parrot what
Pakter was told in interviews and do not apply any expertise. See Benson, 941 F.2d at
604–05 (concluding that the district court abused its discretion in admitting testimony of
expert who “did not give helpful expert testimony that cast another witness’s testimony in
good or bad light [and] instead [ ] simply told the jury whom to believe”).
Plaintiff’s objection No. 5 (page 20) is overruled, provided that the basis of Pakter’s
opinion is his analysis of accounting records and does not simply repeat what others may
have told him about the Bucket Reports.
Plaintiff’s objection No. 6 (page 21) is sustained. Pakter cannot give an expert opinion
that Plaintiff was an employee of Defendant Keystone, as that is a legal conclusion about
a contested fact for the jury to decide at trial. Plaintiff contends that he was a shareholder
or partner of Keystone, whereas Defendants contend that he was an employee. However,
Pakter may opine on the extent to which Plaintiff’s compensation was calculated in a
manner consistent with how other employees and/or partners were compensated at
Keystone. Pakter also may critique Sanders’s understanding of the economic structure at
Keystone.
Plaintiff’s objection No. 7 (page 23) is sustained in part. Pakter cannot opine that the
“the employment compensation formula” was “agreed” as that is a disputed fact issue for
trial. However, Pakter can give a variation of his proposed opinion: he can testify that
based on his review of the Bucket Reports and other information and documentation in
discovery, the compensation formula to which Defendants’ fact witnesses testified was
consistently followed and that the Bucket Reports were accurately designed and
implemented to specifically follow that employment compensation formula.
Plaintiff’s objections Nos. 8 and 9 (page 27) are sustained, as Pakter merely restates
contested facts. To the extent that Pakter offers his opinion on these contested facts to
contradict the factual assumptions underlying Sanders’s opinion, the Court notes that
challenges to the factual basis of Sanders’s opinion are better suited for crossexamination. See Bonner v. ISP Technologies, Inc., 259 F.3d 924, 929–30 (8th Cir.
15
2001) (explaining that it is up to the opposing party to examine the factual basis of an
expert opinion in cross-examination).
Plaintiff’s objection No. 10 (page 28) is sustained, as whether Plaintiff agreed to
Defendant Hall’s “management” or “franchise’ fee is an issue to be resolved at trial based
on fact witness testimony, and Pakter did not draw on any expertise to offer his opinion
that based on his interviews, Plaintiff agreed with this fee arrangement.
Plaintiff’s objection No. 11 (page 30) is sustained. Pakter offered these statements as
proposed reasons for why Sanders was incorrect that Plaintiff was wrongly charged for
Roalsen’s payroll and travel expenses. However, Pakter offered no expertise in stating
what Plaintiff purportedly agreed to regarding an arrangement to pay Roalsen or in
repeating what interviewees told him about Roalsen’s work.
Plaintiff’s objections Nos. 12 (page 32), 13 (page 33), and 14 (page 35) are sustained.
Whether Plaintiff agreed to certain fee arrangements is a disputed fact for trial.
Plaintiff’s objection No. 15 (page 35) is sustained. Whether there was an agreement to
increase Plaintiff’s percentage of Keystone’s expenses is a disputed fact for trial.
Plaintiff’s objection No. 16 (page 36) is sustained. Pakter did not draw on any expertise
to offer his opinion that Plaintiff as covered by two medical malpractice policies at his
own specific request.
Plaintiff’s objections Nos. 17 (page 38), 18 (page 40), 19 (page 42), 20 (page 43), 21
(page 44), 22 (page 45), 23 (page 46), and 24 (page 47) are sustained, as whether Plaintiff
agreed to certain fee arrangements is a disputed fact for trial.
Plaintiff’s objection No. 25 (page 28) is sustained, as whether Plaintiff was an employee
or partner of Defendant Keystone is a contested issue for trial. However, to the extent
that Pakter can apply specialized knowledge to explain to the jury ways in which the
accounting records that he examined suggest that Plaintiff was treated as (or compensated
as) an employee and not a partner, he may offer those opinions.
Plaintiff’s objection No. 26 (page 50) is sustained, as whether Plaintiff agreed to certain
fee arrangements is a disputed fact for trial.
Plaintiff’s objection No. 27 (page 54) is sustained, as whether Plaintiff contributed the
$100,000 relating to cash reserves is a disputed issue for trial.
Plaintiff’s objections Nos. 28 (page 55) and 29 (page 55) are sustained, as whether
Plaintiff agreed to certain arrangements is a disputed fact for trial.
Plaintiff’s objections Nos. 30 (page 60) and 31 (page 63) are sustained, as Pakter offered
no specialized knowledge or expertise to form these opinions and merely parroted what
he was told by Defendants in interviews. See Stachniak v. Hayes, 989 F.2d 914, 925 (7th
16
Cir. 1993) (“We have stated that “[c]redibility is not a proper subject for expert
testimony; the jury does not need an expert to tell it whom to believe, and the expert's
‘stamp of approval’ on a particular witness' testimony may unduly influence the jury.”
(citation and internal quotation marks omitted).
Plaintiff’s objection No. 32 (page 70) is sustained, as whether Plaintiff signed the
Operating Agreement dated January 1, 2005 is a disputed fact for trial and Pakter is not
being offered as a handwriting expert.
Plaintiff’s objection No. 33 (page 78) is sustained, as Pakter offered no specialized
knowledge or expertise to form this opinion and merely parroted what he was told by
Defendants in interviews.
Plaintiff also argues that Pakter improperly seeks to offer legal opinions by stating that
Defendant Hall is completely innocent of any fraudulent conduct, that there is no evidence of
fraud, and that Defendants made a “good faith effort” to account for the amounts that Plaintiff
allegedly failed to pay Defendant Keystone when he disassociated. As noted above, the Seventh
Circuit has stressed that expert testimony as to legal conclusions that will determine the outcome
of the case is inadmissible. Good Shepherd Manor Found., Inc. v. City of Momence, 323 F.3d
557, 564 (7th Cir. 2003).
Further, expert testimony that an individual did or did not act
fraudulently is inadmissible, as the fact finder, not the expert, must determine whether Plaintiff
has offered sufficient evidence to show that Defendants acted fraudulently. See Apotex Corp. v.
Merck & Co., 2006 WL 1155954, at *8 (N.D. Ill. Apr. 25, 2006), aff’d, 507 F.3d 1357 (Fed. Cir.
2007) (holding expert testimony inadmissible under Rule 702 where expert report stated that “[i]t
is my opinion based on the evidence that [defendant’s conduct was] a fraud on the courts”);
Ass’n Ben. Servs., Inc. v. AdvancePCS Holding Corp., 2005 WL 2335484, at *4 (N.D. Ill. Sept.
23, 2005) (holding that expert’s testimony that defendant committed fraud “extends beyond the
permissible scope of expert testimony”). Again, the key distinction is between “stating a legal
conclusion” (which is not permitted) and “providing concrete information against which to
measure abstract legal concepts” (which is permitted). Blount, 502 F.3d at 680.
17
More specifically, Plaintiff challenges Pakter’s statement that “I can and have concluded
that there is no proof or support for the assertion that [Plaintiff] was defrauded. Sanders has not
shown—nor could he show—any evidence of fraud.” [314 Exhibit A (Pakter’s Expert Report),
at 18.] Defendants argue that Pakter made this statement in response to Sanders’s opinion that
“The accounting system set up across [Defendant] Hall’s various companies was not consistent
with Generally Accepted Accounting Principles, was unreliable, and lacked appropriate
transparency.” Defendants also argue that this opinion is proper since Pakter is a Certified Fraud
Examiner. Plaintiff also challenges Pakter’s statement that: “As part of my review and analyze
[sic] of these issues, I analyzed the above-listed financial elements of the 1099-MISC and
concluded there was a good faith effort to account for the amounts that [Plaintiff] failed to pay
[Defendant] Keystone when he disassociated from [Defendant] Keystone.”
[Id. at 83.]
Defendants argue that this statement is in response to Sanders’s statement that in his opinion,
“the 1099-MISC was improperly issued.”
The Court agrees with Plaintiff that, with one minor exception discussed below relating
to Pakter’s criticism of Sanders’s work, these statements improperly offer legal conclusions as to
whether or not Defendants committed fraud and whether Defendants acted in good faith. See
Richman v. Sheahan, 415 F. Supp. 2d 929, 950 (N.D. Ill. 2006) (holding that expert was not
permitted to testify that defendants “were carrying out there [sic] lawful duties” because “[t]hat
conclusion does not put the facts in context or assist the jury in understanding the facts at issue”);
Klaczak v. Consol. Med. Transp. Inc., 2005 WL 1564981, at *8 (N.D. Ill. May 26, 2005)
(holding that expert could not testify that defendants committed fraud and stating that “proffered
expert assertions about another’s subjective intent or knowledge are not helpful to the jury”);
Dahlin v. Evangelical Child & Family Agency, 2002 WL 31834881, at *3 (N.D. Ill. Dec. 18,
18
2002) (holding that expert could not testify that defendant’s actions constituted fraud and
explaining that “[t]his is a quintessential jury determination on which the Court will instruct a
jury concerning the factors it is to consider”). Here is the exception: to the extent that Pakter
wishes to respond to Sanders’s statements, he can testify that Sanders’s opinions are unsupported
or testify that “there is sufficient accounting support for the inclusion of the underlying
components of the $159,577.45 contained in the 1099-MISC,” without using legal terms such as
“fraud” and “good faith.” Plaintiff also challenges Pakter’s statement that “[t]here is nothing in
the record in this litigation that contradicts that [sic] the overall reliability of the Bucket
Reports.” However, this is not a legal conclusion and Plaintiff certainly is welcome to try to
establish the opposite proposition at trial.
In sum, Pakter is permitted to testify about disputed facts in order to provide the factual
assumptions on which he relies for his expert opinions and thus provide helpful context for
presenting his opinions to the jury. Pakter must then apply his expertise to these disputed facts in
a way that is helpful to the jury. However, he is not permitted to simply recapitulate what
Defendants have told him about disputed facts or endorse the testimony of a fact witness, as “the
jury does not need an expert to tell it whom to believe, and the expert’s ‘stamp of approval’ on a
particular witness’ testimony may unduly influence the jury.” Benson, 941 F.2d at 604. Nor is
Pakter permitted to opine on whether or not there is evidence of fraud or offer any other opinions
that state legal conclusions. See id. (explaining that an expert’s opinion must be “an opinion
informed by the witness’ expertise[ ] rather than simply an opinion broached by a purported
expert”).
Finally, Plaintiff objects to Pakter’s opinion that Sanders’s testimony would “not help the
trier of fact to determine the facts at issue,” is “not based on sufficient facts or data,” is “not the
19
product of reliable principles and methods,” and that Sanders “has not reliably applied the
principles and methods to the facts of the case.” Plaintiff contends, without citing any relevant
authority, that this testimony usurps the Court’s role as the gatekeeper of expert opinions.
Defendants agree that Pakter will not testify in front of the jury that Sanders’s opinions “will not
help the trier of fact to determine the facts at issue.” The Court agrees with Plaintiff that arguing
the legal standard under Daubert to the jury would be improper; indeed, the Court already has
rejected that argument in overruling Defendants’ motion to exclude portions of Sanders’s
testimony.
Nevertheless, Pakter remains free to criticize Sanders’s methodology, factual
assumptions, and conclusions.
III.
Motions in Limine
A.
Legal Standard
A motion in limine is a motion made “at the outset” or “preliminarily.” BLACK’S LAW
DICTIONARY 803 (10th ed. 2014). Motions in limine may be used to eliminate evidence “that
clearly ought not be presented to the jury because [it] clearly would be inadmissible for any
purpose.” Jonasson v. Lutheran Child & Family Svcs., 115 F.3d 436, 440 (7th Cir. 1997). The
party seeking to exclude evidence “has the burden of establishing the evidence is not admissible
for any purpose.” Mason v. City of Chicago, 631 F. Supp. 2d 1052, 1056 (N.D. Ill. 2009). The
power to rule on motions in limine inheres in the Court’s role in managing trials. Luce v. United
States, 469 U.S. 38, 41 n.4 (1984). Because motions in limine are filed before the Court has seen
or heard the evidence or observed the trial unfold, rulings in limine may be subject to alteration
or reconsideration during the course of trial. United States v. Connelly, 874 F.2d 412, 416 (7th
Cir. 1989).
20
B.
Defendant Hall’s Alleged Prior Bad Acts (Plaintiff’s Motion No. 2 and
Defendants’ Motions 2, 3, 8, 9, and 10)
1.
Cloud 1099-MISC and Roalsen K-1
The Court will first address Plaintiff’s motion in limine No. 2 and Defendants’ motions in
limine Nos. 2, 3, 8, 9, and 10, which deal with related issues. Plaintiff moves to allow Rule
404(b) evidence of Defendant Hall’s prior bad acts in retaliating against former business
associates. In the current action, Plaintiff alleges that Defendants filed a fraudulent 1099-MISC
with the IRS and falsely claimed that Plaintiff owed Defendants money, when, according to
Plaintiff, Defendants actually owed Plaintiff money. Plaintiff claims that these allegations are
relevant to Count I (fraudulently filing an information return in violation of 26 U.S.C. § 7432)
and Count II (common law fraud), which both require proof of intent. Plaintiff intends to offer
evidence that Defendant Hall subjected other former business associates to “strikingly similar
fraudulent filings in retaliation for their defections from Keystone right around the same time.”
[326, at 2.] This evidence includes an allegedly false 1099-MISC issued to former Keystone
employee George Cloud and Cloud’s trial testimony concerning the incident, and an allegedly
false Schedule K-1 issued to Defendant Hall’s brother-in-law Merritt Roalsen and Roalsen’s
deposition testimony concerning the incident. On the other side of the coin, Defendants’ motion
No. 2 seeks to exclude the 1099-MISC issued by Keystone to Cloud (Plaintiff’s Exhibit No. 14),
and Defendants’ motion No. 3 seeks to exclude a text message from Roalsen to Plaintiff about
the Schedule K-1 issued by Defendant Hall (Plaintiff’s Exhibit No. 22).
Rule 404(b) prohibits the introduction of evidence of other crimes or bad acts when such
evidence is offered to prove the character of a person in order to show “conduct in conformity
therewith.” United States v. Robinson, 161 F.3d 463, 466 (7th Cir. 1998); Fed. R. Evid. 404(b).
That is, evidence of prior bad acts is not admissible for an impermissible propensity inference.
21
However, Rule 404(b) expressly permits evidence of prior bad acts to be introduced for purposes
other than to establish a propensity for wrongdoing, including proof of motive, opportunity,
intent, preparation, plan, knowledge, identity, absence of mistake or accident, or modus
operandi. Fed. R. Evid. 404(b); Robinson, 161 F.3d at 466. Both parties rely on a four-part test
formerly used by the Seventh Circuit to determine the appropriateness of admitting evidence of
prior bad acts. However, the Seventh Circuit explicitly abandoned this four-part test in United
States v. Gomez, in favor of a more straightforward rules-based approach.6 763 F.3d 845, 853
(7th Cir. 2014) (“This change is less of a substantive modification than a shift in paradigm that
we hope will produce clarity and better practice in applying the relevant rules of evidence.”).
Under Gomez, the proponent of the evidence must first show “that the other act is
relevant to a specific purpose other than the person’s character or propensity to behave in a
certain way.” 763 F.3d at 860 (citing Fed. R. Evid. 401, 402, 404(b)). Although other-act
evidence need not be excluded whenever a propensity inference can be drawn, its relevance to a
permitted purpose “must be established through a chain of reasoning that does not rely on the
forbidden [propensity] inference.” Id. Thus, courts must ask not just “whether the proposed
other-act evidence is relevant to a non-propensity purpose but how exactly the evidence is
relevant to that purpose.” United States v. Anzaldi, 800 F.3d 872, 882 (7th Cir. 2015) (citing
Gomez, 763 F.3d at 856). The district court must assess whether the probative value of the otheract evidence is substantially outweighed by the risk of unfair prejudice. Gomez, 763 F.3d at 860.
6
Under the old four-prong test, the admissibility of evidence of prior bad acts was dependent upon
whether: (1) the evidence is direct towards establishing a matter in issue other than the defendant’s
propensity to commit the act accused of; (2) the evidence the evidence shows that the other act is similar
enough and close enough in time to be relevant to the matter in issue; (3) the evidence is sufficient to
support a jury finding that the defendant committed the similar act; and (4) the evidence has probative
value that is not substantially outweighed by the danger of unfair prejudice. Robinson, 161 F.3d at 467.
The fourth prong of this test incorporated Rule 403. Id.
22
The court’s Rule 403 balancing should take into account the extent to which the non-propensity
fact for which the other-act evidence is offered is actually contested in the case. Id.
Plaintiff argues that he offers the evidence involving the 1099-MISC issued to Cloud and
the K-1 issued to Roalsen to show identity, modus operandi, intent, and absence of mistake.
First, Plaintiff argues that Defendant Hall put his identity at issue by taking the position that if
anyone filed the false 1099-MISC, it was not him personally. Plaintiff relies on Defendants’
Proposed Final Jury Instruction No. 4, which states, in relevant part: “[Defendant Hall] denies
that he filed any Form 1099-MISC regarding [Plaintiff].” However, in their response brief,
Defendants take the position that identity is not in dispute here.7 [331, at 3.] To the extent that
identity is not in dispute, Plaintiff’s argument that the evidence is relevant to show identity fails.
Additionally, if identity is not in dispute, Plaintiff’s argument that the evidence is relevant to
show modus operandi also fails, as modus operandi evidence is generally admissible only to
prove the identity of the defendants. See Robinson, 161 F.3d at 467 (“[evidence of modus
operandi] may be properly admitted pursuant to Rule 404(b) to prove identity”); Goldberg v. 401
North Wabash Venture LLC, 2013 2013 WL 1499043, at *6 (N.D. Ill. Apr. 11, 2013) (holding
that evidence was not admissible to establish modus operandi and explaining that modus
operandi evidence “is generally only admissible to prove the identity of the defendants, which
here is not in dispute”).
Further, based on the current record, the Court is not convinced that the acts in question
are similar enough to the case at bar for a modus operandi rationale to apply. Evidence of modus
operandi shows a defendant’s “distinctive method of operation.” Robinson, 161 F.3d at 467.
The Seventh Circuit has cautioned that “[i]f defined broadly enough, modus operandi evidence
7
The Court will further explore this issue with counsel at the final pre-trial conference on May 18 to
ensure a consistency of approach in regard to any issues relating to identity and the related issue of who
was responsible for the filing of 1099-MISC forms on behalf of the corporate Defendants in this case.
23
can easily become nothing more than the character evidence that Rule 404(b) prohibits.” United
States v. Smith, 103 F.3d 600, 603 (7th Cir. 1996). Thus, the similarities between the crimes
must be “sufficiently idiosyncratic to permit an inference of pattern for purposes of truth.”
Robinson, 161 F.3d at 468 (citation and internal quotation marks omitted). Generic patterns are
insufficient for purposes of modus operandi because allowing such evidence “would gut the
Rule, rending it useless as a check on character evidence that would otherwise be inadmissible.”
United States v. Thomas, 321 F.3d 627, 635 (7th Cir. 2003).
Here, Defendants issued a 1099-MISC that reported payment of $159,577.45 to Plaintiff.
Defendants contend that the payment reported in the 1099-MISC included $100,000 that Plaintiff
owed to cash reserves and $28,000 that Plaintiff owed for his share of the WACHN down
payment. Plaintiff disputed that he owed these amounts and contended that he had already made
all required contributions. The parties also dispute whether $38,010.45 included in the 1099MISC was a bonus that Defendants chose to give Plaintiff or earned income.
[See 303
(Summary Judgment Opinion), at 7.] In contrast, the 1099-MISC issued to Cloud was, according
to Defendants, in relation to a 2001 Dodge Ram Van that Defendants Keystone and Hall gave to
Cloud, who was at the time a Keystone staff employee. Other than the fact that a 1099-MISC
was used in both scenarios, the scenarios appear to be quite different from one another based on
the record before the Court. The other Rule 404(b) issue involves an allegedly fake K-1 issued
to Roalsen by MedStaff, a company that is not party to this lawsuit and in which Defendants
allege that Defendant Hall owns no interest. Plaintiff does not provide enough detail from which
the Court can conclude that these past acts are similar enough to the case at hand (or sufficiently
idiosyncratic) that they “permit an inference of pattern for purposes of truth.” Robinson, 161
F.3d at 468.
24
Plaintiff also proposes to offer the evidence involving the 1099-MISC issued to Cloud
and the K-1 issued to Roalsen to show intent and absence of mistake. Plaintiff contends that
Defendants are taking the position that if the filing was false, it was not intentional, and thus
Plaintiff should be able to rebut this defense with evidence of Defendant Hall’s prior bad acts
involving information returns. However, Plaintiff does not satisfactorily explain why Defendant
Hall’s prior bad acts relating to the allegedly false information returns to Cloud and Roalsen are
relevant to proving Defendant Hall’s intent and lack of mistake as to Plaintiff’s 1099-MISC. To
differentiate between the “illegitimate use of a prior [bad act] to show propensity and the proper
use of a prior [bad act] to prove intent, the [proponent of the evidence] must affirmatively show
why a particular prior [bad act] tends to show the more forward-looking fact of purpose, design,
or volition to commit the new crime.” Miller, 673 F.3d at 699 (citation and internal quotation
marks omitted).
Here, Plaintiff has not shown a link between Defendant Hall’s alleged
involvement in issuing false information returns in the past and his state of mind was when
issuing Plaintiff’s 1099-MISC. Cf. Anzaldi, 800 F.3d at 881–82 (in tax fraud prosecution,
evidence of defendant’s attempt to structure her fees in a way she believed would circumvent
government attention was admissible for propensity-free chain of reasoning: evidence tended to
prove intent to defraud and helped negate defendant’s asserted good faith defense because she
would not have attempted to hide her fee activity from the government if she truly believed her
tax positions were legitimate); United States v. Urena, 844 F.3d 681, 684 (7th Cir. 2016)
(evidence of defendant’s seven prior removals from U.S. was admissible in prosecution for being
alien found in U.S. after deportation for non-propensity purpose: evidence was probative of
defendant’s knowledge that he could not lawfully reenter U.S. without permission).
25
The evidence involving the Cloud 1099-MISC and the Roalsen K-1 also presents a Rule
403 issue. There is a high risk of confusing of the issues and wasting time, which may outweigh
the probative value of such evidence. The Court will not permit a lengthy sideshow on these
issues or “time consuming mini-trials regarding the merits of these other allegations.” Patterson
v. City of Chicago, 2017 WL 770991, at *4 (N.D. Ill. Feb. 28, 2017); see also Fed. R. Evid. 403,
611. The jury is not being asked to decide the propriety of Defendant Hall’s issuance of the
1099-MISC for Cloud’s car or MedStaff’s issuance of the K-1 to Roalsen, as these events are not
at issue in this trial. Further, the evidence Plaintiff offers has a high risk of undue prejudice, as it
may invite the jury to infer that Defendant Hall is the type of person who commits fraud against
his business partners and employees using tax forms, and thus Defendant Hall is more likely to
have subjected Plaintiff to fraud in the case at hand. See United States v. Stacy, 769 F.3d 969,
974 (7th Cir. 2014) (in prosecution for conspiracy to manufacture methamphetamine, district
court erred in admitting evidence of defendant’s prior possession of methamphetamine and
pseudoephedrine pills because government’s argument that evidence was probative of
defendant’s intent to use pseudoephedrine to make methamphetamine and his knowledge of the
process for making methamphetamine relied on a forbidden propensity inference: that
defendant’s history of involvement with methamphetamine manufacturing makes it more likely
that he intended to use the pseudoephedrine pills to make methamphetamine); Gomez, 763 F.3d
at 863 (district court erred in admitting evidence that a small user quantity of cocaine of a
different purity of that in the conspiracy was found in defendant’s bedroom after conspiracy
ended, as government’s theory—that because defendant possessed a small quantity of cocaine at
the time of his arrest, he must have been involved in the cocaine-distribution conspiracy—rested
26
on pure propensity); Miller, 673 F.3d at 698 (“[I]ntent is the exception most likely to blend with
improper propensity uses.”).
Thus, the Court provisionally excludes any evidence pertaining to the 1099-MISC issued
to Cloud and the K-1 issued to Roalsen. If Defendants put identity at issue, then Plaintiff may
present to the Court (outside the presence of the jury) an offer of proof with additional details as
to how the proposed evidence is relevant to showing identity and modus operandi. See United
States v. Miller, 673 F.3d 688, 696 (7th Cir. 2012) (“The district court wisely waited until after
opening statements and cross-examination of a key witness to learn the defense theory before
deciding whether to admit the details under Rule 404(b).”). If the Court does decide to admit this
evidence at trial, the Court will consult with counsel about whether and when to give a limiting
instruction to minimize the prejudicial effect. The Seventh Circuit has noted that appropriate
jury instructions may help to reduce the risk of unfair prejudice inherent in other-act evidence,
but has also cautioned against “judicial freelancing in this area,” as a defendant may prefer to go
without a limiting instruction to avoid highlighting the evidence. See Gomez, 763 F.3d at 860.
Finally, the Court notes that even if this evidence does not come in as substance evidence under
Rule 404(b), Plaintiff may be permitted to cross-examine Defendant Hall about the allegedly
false tax returns he issued to Cloud and Roalsen under Rule 608(b) because these specific
instances of conduct goes to Defendant Hall’s character for truthfulness. The Court reserves
ruling on this issue as well. However, to the extent that the Court may allow such crossexamination, Plaintiff would not be allowed to introduce extrinsic evidence. See Fed. R. Evid.
608(b).
27
2.
Tom Boecker
Turning to Defendants’ related motions in limine, Defendants’ motion No. 8 seeking to
bar reference to documents subpoenaed from Tom Boecker is granted, as Plaintiff asserts that he
does not intend to offer Plaintiff’s Exhibit 27, which consists of the documents subpoenaed from
Boecker. Boecker was a part owner of Midwest Diagnostics, a company in which Defendant
Hall had an interest, and he worked with Defendant Hall during the same period that Plaintiff
was with Keystone. Plaintiff asserts that he intends to call Boecker to testify that when he left
Midwest Diagnostics to start his own company, Defendant Hall told him that he owed him
money which he did not actually owe, and that according to Boecker, this was Defendant Hall’s
modus operandi with many former business associates.
The Court concludes that Plaintiff has not demonstrated how Boecker’s testimony would
be relevant for a specific purpose other than propensity. Boecker’s testimony is not relevant to
modus operandi because identity is not at issue (Defendant Hall is not asserting as a defense that
someone else told Plaintiff that Plaintiff owed him money), and modus operandi evidence is
generally only admissible to prove the identity of the defendants. See Robinson, 161 F.3d at
467; Goldberg, 2013 WL 1499043, at *6. Further, without additional detail, the general act of
telling someone he owes money that he does not actually owe is not “sufficiently idiosyncratic to
permit an inference of pattern for purposes of truth.” Robinson, 161 F.3d at 468 (citation and
internal quotation marks omitted); Miller, 637 F.3d at 699 (explaining that prior conviction
“cannot be admissible merely because it was for the same crime” and that “[p]attern evidence is
propensity evidence, and it is inadmissible unless the pattern shows some meaningful specificity
or other feature that suggest identity or some other fact at issue”).
28
Plaintiff seems to be offering Boecker’s testimony to suggest that Defendant Hall “made
up phony debts” in the past and thus he is the type of person who makes up phony debts. This is
an impermissible propensity inference, and thus Boecker’s testimony is not admissible for this
purpose.
However, under Rule 608(a), Boecker may testify may testify as to opinion or
reputation evidence about Defendant Hall’s character for untruthfulness pursuant. Additionally,
under Rule 608(b), Plaintiff may be permitted to cross-examine Defendant Hall about the alleged
fraud against Boecker without introducing extrinsic evidence because the specific instance of
conduct goes to Defendant Hall’s character for truthfulness. This Rule 608(b) issue, too, is
reserved at this time.8
C.
Plaintiff’s Motions in Limine
1.
Plaintiff’s Motion No. 3 to Exclude Defendants’ Exhibit No. 6 and
Reference to a Prescription Written to Merritt Roalsen
Plaintiff seeks to exclude Defendants’ Exhibit No. 6, which is a record of a pain
medication prescription written in 2006 by Plaintiff to Merritt Roalsen, Defendant Hall’s former
brother-in-law and business manager.
Defendants contend that Plaintiff testified at his
deposition that Roalsen was not his patient and that he wrote him a prescription of Ultram as a
courtesy. According to Defendants, the American Medical Association prohibits physicians
from writing prescriptions for controlled-substances to non-patients, and thus they should be able
to introduce the prescription at trial. Plaintiff argues that any reference to this prescription
should be barred as irrelevant because there is no evidence that the prescription was not
medically justified, and Defendants are improperly attempting to use the prescription as
propensity evidence to show bad character.
Defendants’ motion in limine No. 10 seeks generally to exclude prior bad acts evidence under Rule
404(b). Given the specific rulings made above, the Court denies Defendants’ motion in limine No. 10
without prejudice to either side making a contemporaneous Rule 404(b) objection if any particularized
disputes of that nature arise at trial.
8
29
Plaintiff’s motion is granted. Even assuming that Plaintiff’s writing this prescription for
a non-patient was improper under the standards of the American Medical Association, Rule
404(b) excludes evidence of prior bad acts if the purpose is to show a person’s propensity to
behave in a certain way. Fed. R. Evid. 404(b); Gomez, 763 F.3d at 855. Defendants have not
shown that this evidence is relevant for any purpose other than for an impermissible propensity
inference. Rule 403 provides an alternative basis for this ruling, as the probative value of any
evidence about the Roalsen prescription would be minimal and the potential for prejudice to
Plaintiff, as well as a distracting but unfruitful sideshow for the jury, would be significant. Fed.
R. Evid. 403; 611. Additionally, although Rule 608(b) permits cross-examination on specific
instances of conduct if the conduct is probative of the character for truthfulness or untruthfulness
of the witness, Plaintiff’s writing a prescription is not probative of his character for truthfulness
or untruthfulness. See Fed. R. Evid. 608(b). Further, the prescription itself cannot be admitted,
as extrinsic evidence is not admissible to prove specific instances of a witnesses’ conduct in
order to attack the witnesses’ character for truthfulness. Id.; United States v. Holt, 486 F.3d 997,
1001 (7th Cir. 2007).
Defendants’ Exhibit No. 6 is excluded, and Defendants are not to
reference Roalsen’s prescription.
2.
Plaintiff’s Motion No. 4 to Exclude Defendants’ Exhibit No. 8 and
Preclude Mention of an Alleged Disciplinary Hearing
Plaintiff moves to exclude Defendants’ Exhibit No. 8, which is a “Notice of a
Disciplinary Hearing” and attached complaint issued by the State of Illinois Department of
Professional Regulation to Plaintiff in 2004. Plaintiff also seeks to bar any reference to this
alleged disciplinary hearing. Plaintiff contends that the complaint relates to his allegedly not
having completed required “Continuing Medical Education,” but that he simply had to provide
evidence that he had in fact completed his continuing medical education and that there was never
30
a hearing or a sanction. Defendants argue that Plaintiff has not offered evidence of a dismissal
order and that Plaintiff became employed with Keystone in 2004, thus this notice of a
disciplinary hearing is relevant.
Plaintiff’s motion is granted. Defendants have not shown that this evidence is relevant
for any purpose other than for an impermissible propensity inference. Moreover, the allegations
regarding this alleged disciplinary hearing have little probative value, since there is no evidence
that Plaintiff was ultimately subject to a disciplinary hearing or sanction, yet have high
prejudicial value and risk creating an unnecessary sideshow. See Fed. R. Evid. 403, 611.
Additionally, although Rule 608(b) permits cross-examination on specific instances of conduct if
the conduct is probative of the character for truthfulness or untruthfulness of the witness,
Plaintiff’s receipt of this “Notice of a Disciplinary Hearing” is not probative of truthfulness or
untruthfulness. See Fed. R. Evid. 608(b). Further, the notice itself cannot be admitted, as Rule
608(b) prohibits the use of extrinsic evidence to prove specific instances of a witnesses’ conduct
in order to attack the witnesses’ character for truthfulness. Id.; Holt, 486 F.3d at 1001.
3.
Plaintiff’s Motion No. 5 to Exclude Defendants’ Exhibit No. 42:
WACHN’s 2008 Amended Operating Agreement
Plaintiff seeks to bar Defendants’ Exhibit No. 42, which purports to be WACHN’s
Amended Operating Agreement dated January 2008. Plaintiff alleges that by January 2008, he
had left WACHN, along with Dr. Marc Chang and Dr. Daniel Weber, and thus the Amended
Operating Agreement is signed only by Defendant Hall and one of the other WACHN doctors,
Dr. Phillip Narcissi. Plaintiff contends that in January 2008, Defendants Hall and WACHN had
not paid him for his interest in WACHN, including his $111,000 cash contribution. According to
Plaintiff, the Amended Operating Agreement provides that any member “vacating” the WACHN
premises and “failing to monetarily contribute to the financial responsibility of WACHN * * *
31
shall immediately forfeit any cash contribution and any share ownership set forth in this
agreement. The redistribution of ownership shall be decided by remaining members.” [326, at
9–10 (quoting Defendants’ Exhibit 42, Article 9).] Plaintiff argues that the Amended Operating
Agreement was intended to illegally divest Plaintiff of his interest but that without Plaintiff’s
written consent, the document is null and void according to the WACHN Operating Agreement’s
Section 13.10, which provides that “Amendments hereto shall require the written consent of the
Members.”
Plaintiff argues that the Amended Operating Agreement should be barred because it has
no legal force and would mislead and confuse the jury. However, Plaintiff asserts that he should
be able to inquire on cross-examination of Defendant Hall about his attempt to alter the
agreement retroactively since it bears on Defendant Hall’s credibility and on Plaintiff’s claims
that Defendant Hall retaliated against him for resigning from Keystone and withdrawing from
WACHN. Defendants, for their part, argue that WACHN continued to operate after Plaintiff
ceased being a member and that the corporate records of WACHN are relevant to its operations.
The Court concludes that the alleged Amended Operating Agreement is relevant to
WACHN’s operations and notes that the evidence can cut both ways. On one hand, Defendants
may use the Amended Operating Agreement to argue that Plaintiff forfeited his cash
contribution. On the other hand, Plaintiff may argue that Defendant Hall attempted to alter the
agreement retroactively to deprive Plaintiff of his cash contribution. To the extent Plaintiff
believes that the Operating Agreement was not validly amended and that it does not apply to
Plaintiff, he is free to explore these issues at trial. Further, Plaintiff has not shown that the
introduction at trial of the Amended Operating Agreement would be unduly prejudicial. Thus,
Plaintiff’s motion is denied.
32
4.
Plaintiff’s Motion No. 7 [339] to Exclude Defendants’ Exhibit No.
32 and No. 33
Plaintiff moves to exclude Defendants’ Exhibit Nos. 32 and 33, which are purportedly
equipment leases for medical equipment leased by Keystone. Defendants offer these exhibits to
support Defendant Hall’s counterclaim that Plaintiff still owes him money for this equipment
(including an OEC C-arm, C-arm radiolucent procedure table and a Smith and Nancy radio
frequency ablator, which cost Defendant Keystone approximately $225,000, according to the
counterclaim). Plaintiff contends that he requested production of these documents on July 3,
2013, by requesting all documents relating to the expenses that Defendant Hall claimed Plaintiff
owed him, as well as all documents reflecting Keystone’s purchase of medical equipment or
other assets from 2001–2007. However, Defendants did not produce the documents until April
4, 2017, more than a year after fact discovery had closed.
Federal Rule of Civil Procedure 26(a) requires a party to disclose all documents that the
party has in its possession, custody, or control and my use to support its claim. F.R.C.P. 26(a).
A party cannot offer evidence that was not produced during discovery unless the failure to
produce was harmless or substantially justified. Fed. R. Civ. P. 37(c)1); United States Sec. &
Exch. Comm’n v. Berrettini, 2015 WL 5159746, at *1 (N.D. Ill. Sept. 1, 2015).
The
determination of “whether a Rule 26(a) violation is justified or harmless is entrusted to the broad
discretion of the district court.” David v. Caterpillar, Inc., 324 F.3d 851, 857 (7th Cir.
2003) (citation and internal quotation marks omitted). The following factors guide the Court's
discretion: “(1) the prejudice or surprise to the party against whom the evidence is offered;
(2) the ability of the party to cure the prejudice; (3) the likelihood of disruption to the trial; and
(4) the bad faith or willfulness involved in not disclosing the evidence at an earlier date.” Id.
33
Here, Plaintiff has been prejudiced by Defendants’ late disclosure of these documents
because Plaintiff has not had an opportunity to explore this new evidence through depositions,
interrogatories, or supplemental document requests. Plaintiff has not had an opportunity to
inquire about whether these equipment expenses were paid, by whom they were paid, where and
how the equipment was used, or what efforts Defendants made to sell, lease, or use the
equipment.
Further, Defendants cannot cure this prejudice without delaying trial, and
Defendants have not made any argument that their failure to disclose these documents earlier
was substantially justified.
Defendants argue that the late disclosure is harmless because at Defendant Hall’s
deposition, Defendant Hall raised the topic of the equipment in response to a question about
office expenses and Plaintiff’s counsel asked Defendant Hall some questions about the
equipment. According to Defendant, Plaintiff’s counsel could have asked additional questions at
that time but chose not to, thus demonstrating that Plaintiff had “minimal interest in the
allegations regarding the equipment” in the counterclaim. These arguments are unavailing. As
Plaintiff points out, Defendant Hall’s deposition occurred eight days after the counterclaim was
filed, which was the first time Defendants claimed that Plaintiff owed Defendant Keystone
money for this equipment. And because Defendants had not produced any evidence supporting
these allegations, Plaintiff’s counsel did not ask Defendant Hall many questions about the
equipment at his deposition. Plaintiff’s strategy may have been different if Defendants had
properly disclosed the documents. Thus, Plaintiff’s motion is granted.
34
D.
Defendants’ Motions in Limine
1.
Defendants’ Motion No. 1 to Exclude Plaintiff’s Exhibit No. 13:
Centier Mortgage/Lien on the WACHN Property
Defendants move to exclude Plaintiff’s Exhibit No. 13, which is a mortgage between
Centier Bank and WACHN. Defendants argue that this exhibit is irrelevant because the Center
mortgage/lien was placed on the WACHN property in 2011, which is after Plaintiff allegedly
disassociated with WACHN in 2007, and because a release of mortgage was entered into
between Centier Bank and WACHN in 2016.
Plaintiff argues that this exhibit is relevant to the alleged scheme to defraud. According
to Plaintiff, he was required in 2005 to make a $111,000 capital contribution and guarantee a $1
million loan to Great Lakes Bank in order for WACHN to purchase Keystone’s office space in
Hazel Crest, in exchange for 20% interest in WACHN. Plaintiff contends that when he left
Keystone, Defendant Hall refused to purchase Plaintiff’s interest in WACHN and prevented
Great Lakes Bank from offering to release Plaintiff as a guarantor of the loan. Plaintiff further
contends that in 2011, Defendant Hall pledged the WACHN building as collateral to Centier
Bank for one of Defendant Hall’s other business ventures, further encumbering Plaintiff’s
interest in WACHN for Defendant Hall’s benefit, without Plaintiff’s consent.
The Court
concludes that Plaintiff has shown that Plaintiff’s Exhibit No. 13 is relevant, and thus
Defendants’ motion is denied.
2.
Defendants’ Motion No. 4 to Exclude Plaintiff’s Exhibit No. 19:
Surveillance Photos of Defendant Hall
Defendants seek to exclude Plaintiff’s Exhibit No. 19, which are surveillance photos
dated February 11, 2014, of Defendant Hall in the parking lot and lobby of the medical practice
where former Keystone physician, Dr. Chang, is employed. Defendants argue that the photos are
irrelevant. Plaintiff argues that the photos corroborate Dr. Chang’s deposition testimony that
35
Defendant Hall came to Dr. Chang’s office and threatened to sue Dr. Chang if he did not make
Plaintiff drop his lawsuit against Defendant Hall. Dr. Chang testified in his deposition that
Defendant Hall threatened to “drag [Dr. Chang] in” and “come after [him] for monies” that
Defendant Hall claimed Dr. Chang owed him, if he did not convince Plaintiff to drop the lawsuit.
The Court reserves ruling at this time on Defendants’ motion in limine No. 4. To be sure,
the Seventh Circuit has explained, “evidence of a defendant’s attempts at intimidation of a
witness * * * is admissible to demonstrate a defendant’s ‘consciousness of guilt[.]’” United
States v. Balzano, 916 F.2d 1273, 1281 (7th Cir. 1990). Nevertheless, provided that Defendant
Hall does not deny going to Dr. Chang’s offices on the date that the photographs were taken, the
photos themselves would add little or nothing of probative value to Dr. Chang’s testimony. If
Plaintiff still wishes to admit the photographs during or at the close of Dr. Chang’s direct
testimony, Plaintiff may request a brief sidebar and the Court will address the issue at that time.
3.
Defendants’ Motion No. 5 to Exclude Plaintiff’s Exhibit No. 1:
Defendant Hall’s Personal Tax Returns
Defendants seek to exclude Plaintiff’s Exhibit No. 1, which consists of Defendant Hall’s
and his wife’s personal federal and state tax returns for years 2005–2007. Defendants argue that
this exhibit is irrelevant.
Plaintiff argues that the returns contain relevant evidence that
Defendant Hall owned, controlled, and profited from a network of companies that he used to
funnel profits away from Keystone and into his own pocket. Plaintiff further contends that
Defendant Hall’s scheme to defraud involved running nearly all of his Keystone patient billing
income through his S-corporation, Martin R. Hall, M.D.S.C. According to Plaintiff, Defendant
Hall kept this income a secret from Plaintiff and the other Keystone partners, and the tax returns
show that nearly all of Defendant Hall’s income came through Martin R. Hall, M.D.S.C.
Plaintiff also argues that the tax returns show that Defendant Hall received tax benefits relating
36
to a house owned by his wife in Homewood, Illinois, which was used to store Keystone records
and for the Halls for personal business, and that these tax benefits are part of the alleged scheme
to defraud. The Court concludes that Plaintiff has shown that Plaintiff’s Exhibit No. 1 is
relevant, and thus Defendants’ motion is denied.9
4.
Defendants’ Motion No. 6 to Exclude Plaintiff’s Exhibit No. 15:
Jenner & Block Invoices
Defendants move to exclude Plaintiff’s Exhibit No. 15, which consists of bills from
Plaintiff’s accountant, Vranas & Vlahos Accountants, and his former attorneys at Jenner &
Block. Plaintiff asserts that he does not seek to introduce evidence of attorney’s fees to the jury
and only seeks to present this issue to the Court after trial, if the jury finds that Defendants are
liable under Count I (fraudulently filing an information return in violation of 26 U.S.C. § 7432).
Given that attorneys’ fees will be a matter for the Court to address in the event that the jury
returns a verdict for the Plaintiff and the Court cannot envision any scenario in which it would be
proper for either side to raise the subject of attorneys’ fees in the presence of the jury,
Defendants’ motion is granted.
5.
Defendants’ Motion No. 7 to Exclude Plaintiff’s Exhibit No. 28:
Defendant Hall’s Affiliation with Hind General Hospital, LLC
Defendants move to exclude Plaintiff’s Exhibit No. 28, which consists of documents
showing Defendant Hall’s income from Hind Hospital. Defendants argue that these documents
are irrelevant. Plaintiff argues that the documents show income that Defendant Hall hid from his
partners at Keystone and are relevant to Plaintiff’s claim that Defendant Hall breached his
fiduciary duty to his partners in charging them an inflated management fee of $140,000.
Plaintiff also argues that the tax returns are admissible as evidence of Defendant Hall’s net worth, which
is relevant to the computation of punitive damages. Whether or not tax records from more than a decade
ago would be admissible on that basis alone is not clear to the Court without a better appreciation for the
totality of Defendant Hall’s financial records, which will be explored at trial.
9
37
Plaintiff contends that with Defendant Hall’s “duties at Hind, his busy private practice, and the
demands of his other businesses, [Defendant Hall] could not possibly have earned the excessive
management fee. The Court concludes that Plaintiff has shown that the documents are relevant
to Plaintiff’s claims and Defendants have not shown that the documents are unduly prejudicial.
Thus, Defendants’ motion is denied.
IV.
Conclusion
For the reasons set forth above, Plaintiff’s Daubert motion (Plaintiff’s motion in limine
No. 1) to bar expert testimony by Michael Pakter [314] is granted in part and denied in part.
Defendants’ Daubert motion to bar certain expert testimony by Jay Sanders [309] is denied.
Plaintiff’s motions in limine [326] are granted in part and denied in part: the Court grants
Plaintiff’s motions Nos. 3 and 4; the Court denies Plaintiff’s motion No. 5; and the Court
provisionally denies Plaintiff’s motion No. 2. Plaintiff’s motion in limine No. 7 [339] is granted.
Defendants’ motions in limine [317] are granted in part and denied in part: the Court grants
Defendants’ motions Nos. 6 and 8; the Court denies Defendants’ motions Nos. 1, 5, 7, 10, and
11; the Court reserves its ruling on Defendants’ motion No. 4, and the Court provisionally grants
Defendants’ motions Nos. 2 and 3.10 Defendants’ motion [352] is granted, and the Court will
consider the proposed voir dire questions and jury instructions that the parties submitted to the
Court on May 12, 2017. The Court will issue a ruling on Plaintiff’s motion in limine No. 6 [326,
at 10] and Defendants’ motion in limine No. 12 [350] in a separate order. A final pretrial
conference is set for May 18, 2017 at 10:00 a.m. This case remains set for a jury trial to
commence on May 23, 2017.
The Court previously granted in part and denied in part Defendants’ motion in limine No. 9 and denied
as moot witness Dr. Michael Hartman’s motion to quash subpoena [360]. [364.]
10
38
Dated: May 16, 2017
____________________________
Robert M. Dow, Jr.
United States District Judge
39
Exhibit 1: Plaintiff’s Objections to Conclusions and Opinions of Michael Pakter
Objection No. Page of Report
16
No. 1
No. 2
No. 3
No. 4
No. 5
17
18
20
20
21
No. 6
No. 7
No. 8
23
27
Inadmissible Conclusion
The revenues and expenses of the MDSC were purposely and deliberately
disclosed to Angelopoulos and other physicians when they were included in
the Bucket Reports. Based on my Interviews, Angelopoulos and other
physicians routinely reviewed the Bucket Reports and requested adjustments,
which they were then made with revised Bucket Reports
provided…Consequently, when presented quarterly to Hall, Angelopoulos
and others they disclosed [sic] reliably, openly and completely all the
revenues and expenses of the ‘consolidated entity’ for that financial quarter.
Hall represented to me that Angelopoulos was provided with all of the
information and/or documentation he requested.
It is my understanding that Angelopoulos did indeed raise questions on the
quarterly Bucket Report and was provided information and/or documentation
responsive to his questions. During my interview of Keystone’s accounting
personnel, they advised me that they provided Angelopoulos with copies of
all EOBs supporting patient billing…It is my understanding that Sanders was
provided all of the EOBs supporting Angelopoulos' billings…Accordingly, I
can conclude and have concluded that there are no assertions that
Angelopoulos was not credited with all his revenues and billings between
2004 Q1 and 2007 Q3.
Based on my interviews, Angelopoulos agreed with his employee
compensation formula arrangement and contemporaneously consented to all
specific allocations of income and expenses when it was clearly disclosed
and reported to him in the Bucket Reports.
Hall was credited in the Bucket Reports with all his patient billings and
Angelopoulos was credited in the Bucket Reports (and his calculation of
employee compensation) with all his patient billings.
Sanders failed to understand and acknowledge Angelopoulos' agreed upon
economic arrangement with Keystone. Angelopoulos was an employee of
Keystone, an entity wholly owned by Hall. Angelopoulos' compensation, as
an employee, followed a specific formula agreed upon by the parties - an
agreement specifically described by Sanders in his Expert Report.
Based on my review of the Bucket Reports and other information and/or
documentation in discovery in this litigation, this system [Pakter’s
characterization of the contract between Plaintiff and Keystone] was
consistently followed from 2004 to 2007. The Bucket Reports were
accurately designed and implemented to specifically follow the agreed
employment compensation formula.
Based on my Interviews, Angelopoulos agreed with these [contractual]
arrangements and contemporaneously consented to all allocations of income
No. 9
27
28
No. 10
30
No. 11
No. 12
No. 13
No. 14
32
33
35
35
No. 15
No. 16
36
38
No. 17
40
No. 18
No. 19
42
and expenses when presented, disclosed and reported to him in the Bucket
Reports.
Defendants imposed no restrictions on Angelopoulos’ access to back-up data
including but not limited to Angelopoulos’ expenses.
Based on my Interviews, Angelopoulos agreed with this arrangement
[regarding Hall’s “management fee”] and consented to this specific charge
when it was clearly disclosed and reported to him in the Bucket Reports.
Based on my Interviews, Angelopoulos agreed with all arrangement
regarding [Merritt ‘Bear’] Roalsen and consented to these specific charges
when it was clearly disclosed and reported to him in the Bucket
Reports…Based on my Interviews, Roalsen devoted the bulk of his efforts to
Keystone, especially finding physicians to join the practice and managing
Keystone’s employees and facilities.
Based on my Interviews, Angelopoulos consented to this specific charge [for
the 2007 Q3 Facility Fee] when it was clearly disclosed and reported to him
in the Bucket Report.
Based on my Interviews, Angelopoulos agreed with the arrangement that
Keystone would pay all of WACHN's expenses and consented to these
specific WACHN charges when it was clearly disclosed and reported to him
in the Bucket Reports.
Based on my interviews, Angelopoulos agreed with this arrangement [as to
the increase in 2007 Q3 expenses] and consented to this specific charge when
it was clearly disclosed and reported to him in the Bucket Reports in 2007
Q3.
Angelopoulos' compensation agreement contemplated that Angelopoulos'
percentage of Keystone's expenses would fluctuate over time depending on
the number of physicians. When Dr. Change left Keystone, Angelopoulos'
percentage of Keystone's expenses increased. Soon thereafter, Angelopoulos
also left Keystone.
Based on my Interviews, Angelopoulos was covered by two medical
malpractice policies beginning in or around 2005 at his own specific request.
As this was Angelopoulos' direct expense under his employee compensation
arrangement with Keystone, he consented to and was charged this amount.
Based on my Interviews, Angelopoulos agreed with the annual allocations of
the costs of MedStaff employees to Keystone and non-Keystone companies
including the related medical insurance and other costs of the employees
when these were disclosed and reported to him in the Bucket Reports.
Based on my interviews, Angelopoulos agreed with this arrangement [as to
paying for the expenses relating to Hall’s home in Homewood, Illinois] and
consented to this specific charge when it was clearly disclosed and reported
to him in the Bucket Reports from 2005 to 2007.
Based on my Interviews, Angelopoulos agreed to pay the costs of the
Qualified Retirement Plan, as part of the overall costs of Roalsen's
employment compensation package, when these were disclosed and reported
to him in the Bucket Reports.
43
No. 20
No. 21
44
45
No. 22
46
No. 23
47
No. 24
No. 25
48
50
No. 26
No. 27
No. 28
54
55
60
No. 29
No. 30
No. 31
62
63
Based on my Interviews, Angelopoulos agreed with this arrangement
[regarding office function expenses] and consented to this specific charge
when it was clearly disclosed and reported to him in the Bucket Report during
2004 to 2007.
Hall represented that Angelopoulos specifically agreed to absorb these
expenses of Dr. Narcissi and consented to these charges when they were
disclosed and reported in the Bucket Reports.
Based on my Interviews, Angelopoulos agreed with the then-existing
allocations of Misys expenses and consented to this specific charge when it
was clearly disclosed and reported to him in the Bucket Reports.
Based on my Interviews, Angelopoulos agreed with hourly rates at which
Keystone was billed for MRI services and consented to this specific charge
when it was clearly disclosed and reported to him in the Bucket Report.
Based on my Interviews, Angelopoulos agreed with this arrangement
[regarding the asset acquisition expenses] and consented to these specific
charges when they were clearly disclosed and reported to him in the Bucket
Reports from 2004 to 2007.
Angelopoulos was an employee of Keystone.
Based on my Interviews, Angelopoulos agreed with Keystone's (and not the
MGMA's) levels of expenses and consented to pay the agreed-upon
percentages of Keystone's expenses when these were clearly disclosed and
reported to him in the Bucket Report for 2004 to 2007.
Based on my Interviews, while Angelopoulos agreed to contribute the
$100,000 cash reserves, he never did and Hall contributed on his behalf.
Based on my Interviews, Angelopoulos agreed to the 2004 financial
arrangements and was aware there was little or no shared income to be had
between July and December 2004.
Based on my Interviews, Angelopoulos agreed with this arrangement to
account for patient receipts when collected (and not when billed) and to base
Angelopoulos' employee compensation formula on collected payment
receipts.
Based on my Interviews, Angelopoulos agreed with this arrangement
[regarding the physical therapy adjustments] and consented to this specific
adjustment when it was clearly disclosed and reported to him in the Bucket
Reports…Based on my Interviews, the process the [sic] culminated with that
income adjustment for physical therapy income was begun at the specific
request of Angelopoulos who believed, mistakenly, that he was not given
sufficient credit for physical therapy income. After the re-analysis
specifically requested by Angelopoulos was completed, adjustments were
made to Keystone's Bucket Reports. These adjustments, however, resulted in
Angelopoulos receiving less credits than he previously received for physical
therapy income.
Based on my Interviews, the process the [sic] culminated in that income
adjustment for MRI income was begun at the specific request of
Angelopoulos who believed, mistakenly, that he was not given sufficient
credit for MRI income. After the re-analysis specifically requested by
70
No. 32
No. 33
78
Angelopoulos was completed, adjustments were made to Keystone's Bucket
Reports. These adjustments, however, resulted in Angelopoulos receiving
less credits than he previously received for MRI income.
I have seen the original Operating Agreement dated January 1, 2005, which
Angelopoulos claims he never signed, although to my eyes his signature is
apparent from the face of the original Operating Agreement. Even if that were
true (which Defendants dispute), Angelopoulos appeared to have participated
in "ordering" a special meeting on June 29, 2007 for the purpose of, among
other things, amending the original Operating Agreement. It is my
understanding and I have assumed that it would make little sense that
Angelopoulos would order a meeting to amend the original Operating
Agreement and agree on how to amend it, if he believed there was never an
enforceable Operating Agreement to begin with. Angelopoulos signed the
Summary of the WACHN meeting dated June 29, 2007 which contained the
amendments to the Operating Agreement discussed above.
[B]ased on my Interviews, all the other items [in the 1099-MISC] are merely
charges to Angelopoulos that he should have repaid, but did not.
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