Aldridge v. Corporate Management, Inc. et al
Filing
458
ORDER granting in part and denying in part 410 Motion for Attorney Fees Signed by District Judge Henry T. Wingate on 4/9/2021 (CGC)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION
JAMES ALDRIDGE, RELATOR,
on behalf of the
UNITED STATES OF AMERICA
PLAINTIFF
v.
Civil Action No. 1:16-CV00369 HTW-LRA
CORPORATE MANAGEMENT INC.,
et al
DEFENDANTS
ORDER
Before this court is a Motion for Approval to Pay Attorneys’ Fees and Expenses [doc. no.
410], filed by the Defendants herein, Corporate Management, Inc. (“CMI”), Stone County
Hospital, Inc. (“SCH”), H. Ted Cain (“Ted Cain”), Julie Cain, and Thomas Kuluz (“Kuluz”),
(collectively “Defendants”).
The Plaintiffs, the United States of America and the Relator James
Aldridge, oppose the motion. Briefing has been completed and this court is ready to make its
ruling.
BACKGROUND
This was a qui tam action brought under the auspices of the False Claims Act (“FCA”).
After years of litigation culminating in an eight-and-a-half-week trial, the jury found Ted Cain,
Julie Cain, Tommy Kuluz, Corporate Management, Inc., and Stone County Hospital, Inc., liable
for Medicare Fraud under the False Claims Act. The jury also found Ted Cain, Julie Cain, and
CMI., liable under the common law theory of unjust enrichment, and found Stone County
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Hospital, Inc., liable for payments made to it based on a mistake of fact. The jury found in favor
of defendant Starann Lamier, finding that she was not liable for any of the alleged violations.
The jury awarded damages of over $10 million dollars. The FCA requires that the court
treble the damages for violation of the Act, and additionally provides for civil penalties, such that
the total award exceeded $32 million dollars.
Ted Cain was the 100% owner of CMI and of Stone County Hospital, two of the
Defendants in this case, as well as numerous other businesses. Ted Cain’s business empire was
complicated, and the businesses interconnected. Some of these other businesses had even
benefitted from the fraudulent cost reports that Defendants had submitted to Medicare, which
were the subject of this litigation. 1 Stone County Hospital had closed prior to commencement
of the trial and Memorial Hospital (not a Ted Cain Company) was not operating a hospital in the
former Stone County Hospital facility.
During the trial, the court learned that Memorial Hospital was, and presumably still is,
leasing the property where Stone County Hospital former operated and is making monthly lease
payments to Wiggins Acute Care, another company owned 100% by Ted Cain. Despite
Defendants’ hard-waged battle to avoid disclosing bank records for Wiggins Acute Care, the
court ultimately learned that Memorial Hospital (lessee) was making a lease payment of over
$100,000 monthly to Wiggins Acute Care, one of Ted Cain’s wholly owned companies.
The evidence at trial showed, inter alia, that several of Ted Cain’s businesses were housed in the same building
as CMI. While CMI was eligible for reimbursement by Medicare for lease expenses, these other entities were not.
Some of the businesses were not even related to health care. Yet cost reports were submitted to Medicare by
these Defendants for reimbursements for lease payments for the entire building, including spaces occupied by Ted
Cain’s other businesses.
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This court also learned, over the course of the trial, that Ted Cain and the other
Defendants had transferred almost all of the assets of Ted Cain, Julie Cain, and the Ted Cain
companies to a family trust in the year immediately preceding the trial. Cain first transferred all
of the assets into HTC Elite, another company wholly owned by him, then transferred ownership
of HTC Elite to the trusts. Tommy Kuluz testified that Woodland Village Nursing,
Diamondhead Nursing, Wiggins Nursing, Stone County Hospital Nursing, Leakesville Rehab
and Nursing, Quest Pharmacy, the Focus Group, Melody Manor Convalescence, Harrison Co.
Commercial Lot LLC, and Cain Cattle Corporation, became 99% owned by the Cain family trust
“sometime in 2019” via HTC Elite. Ted Cain, who had been the 100% owner of these
companies prior to 2019, became a 1% owner of each. Jan. 27, 2020 Rough Tr. at pp. 6-25.
According to Kuluz, the only entities that did not become 99% owned by the trust were Stone
County Hospital and CMI.
Ted Cain said the trust was for the benefit of his children. One of the HTC documents,
however, lists as a purpose, “the aim to shield assets from creditors.” Feb. 7, 2020 Rough Tr. at
145. The Government took the reasonable view that this transaction was an effort to make the
Defendants judgment proof. Ted Cain admits that he has control over these trusts.
The Government also made the court aware that during the period in which the trial was
being conducted, Ted Cain had listed several properties for sale that he owned, including his
residence in Ocean Springs, Mississippi.
ANALYSIS
This is only a part of the financial quagmire that served as the backdrop to the
Government’s request for prejudgment relief under the FDCPA ( Federal Debt Collection
Procedures Act). The Government contended that the Defendants, and Ted Cain in particular,
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had engaged in efforts to shield, hide or otherwise dissipate assets and showed a propensity to
continue this behavior. This court held several hearings on the issue of prejudgment relief, at
which both Plaintiffs and Defendants presented their arguments.
This court, too, was quite concerned with the timing and the scope of the Defendants’
actions in moving and transferring assets prior to and on the eve of trial. The Defendants raised
the prospect, however, that a writ of attachment or garnishment could jeopardize the continued
operation of Memorial Hospital at its current location. Memorial was the only hospital within
an approximately fifty-mile radius, and was needed in the area. The court did not want to risk
this outcome if there was another way to protect the assets from dissipation, especially since the
government’s request was being made at a time when Defendants had not yet been found guilty
of wrongdoing in the case.
This court opted for an approach that would not be as far-reaching as the procedures
allowed under the FDCPA, but would maintain the status quo. This court ordered that the
Defendants not transfer, sell or dispose of any funds or assets without permission of the court.
Accommodations were made for Defendants to pay” those recurring bills and payroll obligations
that were part of the normal course of business.” Any bills over $50,000 were to be submitted to
the court and to the Government. If appropriate, the court would approve them for payment.
After the jury returned its verdict, but prior to entry of the judgment, the United States
renewed its application for writs of attachment to the real property under the FDCPA and sought
a writ of garnishment [doc. no. 410-1 at p. 1-2]. The United States renewed its concern that as
time passes between the jury verdict and entry of the judgment the more time Defendants would
have to draw down assets and the more time other creditors would have to secure any interests
they might have.
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This court set a future hearing date for all remaining matters, and obtained from the
defense and from Ted Cain and Julie Cain personally, on the record, their assurance that all of
their assets and property would remain in the same status, including the assets of Stone County
Hospital, CMI, Wiggins Acute Care, the family trust, cash, bank accounts, stocks etcetera. [doc.
no. 410-1 at p. 18-20].
The court stated that defense counsel should email the regular bills to the court with a
copy to the Government, and approval by the court, if appropriate, would be made the same day.
The court subsequently agreed, in order to facilitate prompt payment of payroll, that a bill would
be presumptively approved if the Government did not expressly object to it.
The Government has objected only to the April 2020 request by Defendants to pay the
outstanding bill from Carr Allison, one of law firms 2 retained by Defendants to represent them.
The bills were for February and March of 2020, for a total of $257,156.87.
Defendants make three main arguments in support of their motion: 1) that these are
normal bills and should be paid like other regular bills; 2) that the FDCPA does not limit
Defendants’ ability to pay attorney invoices; and 3) preventing them from paying the attorney
invoices would deny Defendants access to counsel.
Defendants currently have no less than six attorneys that have entered an appearance in this case on their
behalf: Ronald Musgrove (of Musgrove Smith Law); Brett Ross (of Carr Allison); Daniel Harris (of Carr Allison);
Michael Bentley (of Bradley Arant Boult Cummings, LLP); Nicole Huffman (of Carr Allison, PC); Michael Bentley (of
Bradley Arant Boult Cummings, LLP); and W. Wayne Drinkwater, Jr. (of Bradley Arant Boult Cummings, LLP). The
first four attorneys represented the Defendants throughout the trial. All four were generally present each day of
the trial. The latter two attorneys entered their appearances on April 21, 2020 [doc. nos. 392 and 393], after this
court had entered its order against dissipating assets, and have appeared for each proceeding in this case since
that time. All six attorneys were present by video or telephone for the May 6, 2020 proceedings and the June 4,
2020 proceedings. For the June 8, 2020 proceedings Defendants were represented by five persons via video
conferencing or telephone. Additionally, Attorney John Banaham, was on the phone line on behalf of the Cain
Trusts, but was not a participating party. Four attorneys were present for the Defendants for the proceedings on
February 4, 2021.
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The first two arguments are easily addressed. First, whether the Carr Allison invoices are
characterized as “normal bills” is of little or no consequence for purposes of determining whether
this court should allow them to be paid. Pursuant to this court’s order, the court has the
discretion to order the attorneys’ fees and expenses paid, or not, whether in the normal course of
business or outside the normal course of business. Secondly, this court did not grant the
Government’s request under the FDCPA, but imposed a less severe means by which to keep the
Defendants’ assets in tact; so, it is not really relevant whether the FDCPA provides for attorneys’
fees to be withheld.
This court now addresses the third argument. Defendants say that defense counsel
cannot realistically continue to represent them without being paid, so Defendants are, in effect,
being deprived of assistance of counsel of their choice for post-trial matters and for appeal. This,
Defendants say, without providing explanation or legal authority, would result in the denial of
due process of law to Defendants under the Fifth 3 and Fourteenth 4 Amendments to the
Constitution. Further, according to Defendants, the Government has not identified any legal
authority prohibiting payment of defense counsel.
The Fifth Amendment to the U.S. Constitution provides, "No person shall be held to answer for a
capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in
cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public
danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb;
nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life,
liberty, or property, without due process of law; nor shall private property be taken for public use, without
just compensation."
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Section 1 of the Fourteenth Amendment to the U.S. Constitution provides: “All persons born or
naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States
and of the state wherein they reside. No state shall make or enforce any law which shall abridge the
privileges or immunities of citizens of the United States; nor shall any state deprive any person of life,
liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal
protection of the laws”.
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This court begins by restating the backdrop against which this court’s order was initially
entered. During the trial, this court became aware, for the first time, that the assets of Ted Cain,
Julie Cain and the Ted Cain-owned companies had been transferred into a trust and that Ted Cain
was claiming to have little to no assets left. This court also found out during the trial that Ted
Cain had several of his properties listed for sale with real estate agents during the time the trial
was taking place. Of even greater concern though, were Defendants’ representations, through
counsel, that there was no source of funds from which to pay the note on the hospital property
without the full amount of the lease payments from Memorial. Defendants contended before
this court that without that monthly payment from Memorial, the mortgage on the hospital
property could not be paid. Yet, Defendants now insist that they be allowed to pay their
attorneys $257,156.87. This court is concerned about which of the Defendants’ contradictory
positions was actually true. Was there a lack of funds to pay the note on the hospital property, or
are there sufficient funds lying around to pay a quarter of a million dollars to Carr Allison, plus
what is being paid to the Musgrove firm, plus what is being paid to the two new attorneys who
have entered the case? Both parts of the question cannot be answered in the affirmative.
Under the circumstances here, and given the Defendants’ track record over the course of
these proceedings and previously, including Defendants’ seeming efforts to hide, transfer or
shield assets, this court must carefully scrutinize Defendants’ request. A jury has determined
that these defendants defrauded the United States of millions of dollars. The Government should
be able to collect on its judgment. The United States continually questioned Defendants’
assertion that Ted Cain, CMI and Stone County Hospital, had no other funds available to satisfy
that note. 1/28/20 Rough Tr. at 196:1-18; 1/31/20 Rough Tr. at 1:15-19; id. at 2:2-20; id. at 7:210; id. at 18:7-20:23. This court itself questioned defense counsel on this point. 1/28/20 Rough
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Tr. at 197:11-14; 1/31/20 Rough Tr. at 10: 15-17; id. at 11:3-6; id. at 11:18-21; id. at 13:16-18.
Defense counsel Harris stated : “there are not other funds from other sources that can be
utilized.” Id. at 10:18 -14:3. Counsel stated that the difference between what Memorial pays and
the amount due on the note was approximately $35,000, and “is used for equipment leases and
other obligations regarding the hospital.” 1/28/20 Rough Tr. at 203:11-204:20.
According to the Government, the bank statements from Wiggins Acute Care (lessor)
show that Defendant Ted Cain transfers out any funds beyond what is necessary to pay the
$94,510.16 note to Bank of Biloxi. The Government provides as examples the following: on
March 29, 2019, Ted Cain wrote himself a check for $29,602 from Wiggins Acute Care; on June
28, 2019, Ted Cain wrote himself a check for $25,608.18 from Wiggins Acute Care; on October
31, 2019, Ted Cain wrote a check to HTC Elite for $61,000. This is contradictory to counsel’s
statement that no funds had gone from Wiggins Acute Care to HTC Elite. 1/31/20 Rough Tr. at
30:7-17.
This court previously discussed that the Ted Cain assets had been transferred to family
trusts. The assets were first transferred to HTC Elite, then from HTC Elite to the family trusts,
over which Ted Cain and his lawyers acknowledge that Ted Cain has control.
Testimony also established that Ted Cain regularly disregarded the boundaries between
the companies he owned. It is therefore quite troubling that Stone County Hospital was paying
the legal fees of all defendants, yet testimony and evidence established that Stone County
Hospital had not been in operation for almost a year. What then, was the true source of those
funds?
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Testimony also established that Ted Cain would write checks from his personal account
to his companies, and that the line was quite blurred between Stone County Hospital and
Wiggins Acute Care as demonstrated by the lease agreement with Memorial.
This court is necessarily skeptical about the source of funds from which these attorneys
fee payments will be made in light of the co-mingling of funds that has been shown. All of this
leads the court to require that the Defendants provide thorough, clear documentation and
explanation of the source of funds from which these attorneys’ fees are to be paid.
Defendants say the Government had not provided any legal authority that would prevent
the Defendants from using their own funds to pay their own attorneys’ fees. In response, though,
the Government cites to U.S. v. Compassionate Home Care Servs., Inc., 2017 WL 9535169 **12 (E.D.N.C. Sept. 8, 2017 and U.S. v. Teevens, 862 F. Supp. 1200, 1225 & n.46 (D.Del. 1992).
In Compassionate Home Care, a False Claims Act case, the court denied defendant’s
motion to release garnished and sequestered funds to pay defense counsel. The court there said:
District courts have broad discretion to release sequestered, frozen, or
garnished funds. The court has authority to release such funds “in the
interest of fundamental fairness if wrongdoing is not yet proven and the
restrained property is a defendant's only means of securing counsel.” As the
first requirement implies, “[r]eleasing restrained funds to pay attorney's
fees is premised on the fact that wrongdoing is not yet proven when the
fee application is made.
In the case before us, wrongdoing has been proven to the satisfaction of a jury of
Defendants’ peers. Moreover, Defendants have apparently paid their numerous other attorneys, 5
Defendants hired Michael Bentley and Wayne Drinkwater after the court had entered its order
preventing dissipation of assets, but none of the other four attorneys in the case has withdrawn. All six
attorneys continue to actively represent these Defendants collectively.
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and continue to hire more. 6 Much like the case sub judice, in Compassionate Home Care a new
attorney entered an appearance after funds had been sequestered. Two new attorneys have entered
the instant case after the courts’ order maintaining the status quo. This raises even more questions
about the dissipation of assets and the source of payment to the numerous attorneys in the case
from Defendants who claim not to have enough assets to pay the mortgage on the hospital property.
The Defendants in Teeven, supra, made the same arguments as the defense counsel in the
instant case – that inability to pay attorneys’ fees might result in the denial of the attorney of the
defendant’s choice. The Teeven court denied the request and reiterated its “underlying concern
that these seized properties not be wasted or dissipated. Like the Defendants here, the Teeven
defendants had listed properties for sale and had also shown a tendency to dissipate assets. Id. at
1226
This court, while sympathetic to defendant’s attorneys’ desire to be paid, has serious
questions about the source of funds from which the Carr Allison attorneys are to be compensated.
This court is persuaded that payment of the attorneys’ fees to Carr Allison cannot be made until
Defendants provide clarification on the source of funds.
Additionally, Carr Allison must provide a detailed itemized statement of the work
performed and the expenses claimed. Relative to the expense that defense counsel says it prepaid
on behalf of Defendants, Carr Allison must submit proof of mileage for witnesses and for the
attorneys, including the originating location. Hotel expenditures also should be documented.
Given the history of Defendants’ seeming efforts to hide, transfer or dissipate assets, these
A separate action has been brought in this federal district court naming as defendants: Harold Cain; Julie
Cain; HTC Enterprises, LLC; HTC Elite, L.P; the Evan Trace Cain GST Trust; the Logan Patrick Cain
GST Trust; and Lucinda K. Sloan. Aldridge v. Cain et al, Civ. Action No. 1:20-cv-321 HTW-MTP. Ted
Cain and Julie Cain have retained Tristan Russell Armer and James H. Heidelberg of the law firm of
Heidelberg, Steinberger, Colmer & Burrow, PA as their attorneys in that proceeding.
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Defendants must be required to provide this court with sufficient detail to ensure that the fees and
expenses awarded are reasonable. A copy of the statement shall be provided to the Plaintiffs with
those privileged portions redacted. An unredacted copy shall be provided to this court, for its in
camera review. Defendants are to remember that the fact of billing is not, itself, privileged, and
Plaintiffs’ copies should only be appropriately redacted. Defendants should submit their itemized
statement of fees and expenses no later than two weeks from the date of this order.
CONCLUSION
For all the reasons stated, this court grants in part, and denies in part, Defendants “Motion
For Approval to Pay Attorneys’ Fees and Expenses.” [doc. no. 410]. This court is prepared to
authorize payment of approved expenses, and will authorize proven mileage, meals and
reasonable hotel bills. Approval for the payment of the Defendants’ attorneys’ fees to Carr
Allison, however, is conditioned upon defense counsel providing to this court the following: 1) a
satisfactory and clear explanation of the source of funds from which the fees at issue will be
paid; 2) a thorough explanation of the contradiction in defense counsel’s representation to this
court that the Defendants had no funds available to satisfy the note on the hospital property other
than the lease payments from Memorial; and 3) a detailed itemized statement of the attorneys’
fees earned and expenses incurred for which counsel is seeking payment.
Upon receipt of these items, this court will determine the amount of funds to be released
for payment of attorneys’ fees and expenses as this court deems appropriate.
SO ORDERED AND ADJUDGED, this 9th day of April, 2021.
__s/ HENRY T. WINGATE________________
UNITED STATES DISTRICT JUDGE
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