Aldridge v. Corporate Management, Inc. et al

Filing 472

ORDER ON Defendants' Attorneys' Fees and Setting Hearing on July 13, 2021 at 9:30 a.m. Signed by District Judge Henry T. Wingate on 6/18/2021 (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-CV-00369 HTW-LRA

CORPORATE MANAGEMENT INC.,
et al

DEFENDANTS
ORDER

Before this court is the Defendants’ Response [doc. no. 463] to this court’s previous
order [doc. no. 458] on Defendants’ Motion for Approval to Pay Attorneys’ Fees and
Expenses. The United States has filed a Reply [doc. no. 465] in opposition, and Defendants
have filed a “Limited Reply” [doc. no. 466] in Response to the United States’ memorandum
brief.
Under ordinary circumstances, courts hesitate to dive into the waters of contracted
fees in civil cases between competent consenting lawyers and their clients. The circumstance
here is far from an ordinary circumstance. This order’s backdrop is a qui tam case. After
years of contentious litigation, this qui tam case was tried before a jury for almost nine
weeks, beginning January 13, 2020, in Gulfport, Mississippi. Two corporate defendants and
four individual defendants were accused of violating the False Claims Act by submitting
false or fraudulent reports for the purpose of receiving Medicare reimbursements. Ted Cain
was the sole owner of the companies involved. The jury returned its verdict in favor of the
Plaintiffs, the Relator and the United States, and against all but one of the defendants.

1

During the trial, this court became aware that Ted Cain had recently listed several of
his properties for sale with real estate agents. The information was not voluntarily disclosed,
but Plaintiffs were able to learn of this development. Over the course of the trial, the court
was also told by Defendants that Ted Cain had transferred the assets of Ted Cain, Julie Cain
and the Cain-owned companies into trusts for the benefit of the Cain children. These trusts,
the court would learn, had been established within the year leading up to the trial of this case.
As this court noted in its previous opinion, Ted Cain’s business empire was vast and
complicated. It was comprised of numerous businesses that were interconnected, with some
of Cain’s non-defendant businesses even benefitting from the Medicare fraud for which the
jury found Defendants liable. Based on the testimony of both Ted Cain and Tommy Kuluz,
Chief Financial Officer for Corporate Management, Inc., (CMI), as well as arguments of
Defendants’ counsel, the lines between Cain’s personal funds and the companies’ funds and
between Ted Cain and his companies, was often blurred.
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. Companies transferred into
the trust included: 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. This information was derived from the testimony of Tommy Kuluz, the Chief
Financial Officer for CMI, and also a Defendant in the case. According to Kuluz, only Stone
County Hospital and CMI, the two corporate defendants in this litigation, were not
transferred to the trusts.

2

Ted Cain testified that Stone County Hospital was no longer in existence, and the
facility where Stone County Hospital had been located was now being leased by Memorial
Hospital. The lease payments, Cain said, were being made to Wiggins Acute Care, which
was the facility that owned the property where Stone County Hospital had been operating.
Ted Cain, himself, claimed to have little to no remaining assets.
Because of Cain’s alleged attempt to transfer, shield, hide or otherwise dissipate
assets, the Government filed a motion for prejudgment relief under the FDCPA (Federal
Debt Collection Procedures Act). This court, concerned with Defendants’ actions in moving
and transferring assets on the eve of trial, conducted several hearings on the issue of
prejudgment relief. Memorial Hospital was paying a monthly lease amount to Wiggins
Acute Care, a Ted Cain company. The Government sought to attach those proceeds.
Defendants, though, claimed that the prospect of a writ of attachment or garnishment
could jeopardize the continued operation of Memorial Hospital. Memorial Hospital, as Stone
County Hospital had been, was the only hospital located in Stone County, Mississippi at that
time.
Defendants’ attorneys represented to the court that the former Stone County Hospital
property was owned by Wiggins Acute Care. There was a mortgage on the property,
Defendants said, that could only be paid with the proceeds from the lease payments from
Memorial Hospital to Wiggins Acute Care. Without that monthly lease payment, Defendants
claimed, there were no other sources from which the monthly mortgage note could be paid.
This was concerning to the court, because it raised the prospect that the property could be
foreclosed, causing Memorial Hospital to close.

3

Defendants resisted the court’s attempts to identify the underlying facts concerning
the ownership of the property, the lease agreement between Memorial and the owner (alleged
to be Wiggins Acute Care), the mortgage agreement and the amount of the mortgage
payments. Defendants did provide some of this information over the course of several
hearings.
This court feared that an attachment of the property or the lease payments flowing
from Memorial to Wiggins Acute Care could jeopardize the continued operation of the
hospital, which was currently being operated by Memorial. This court did not want to take
steps that would have such a drastic consequence, especially since the Defendants had not
yet been found liable for the fraud of which they were accused.
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. That approach was this: the
Defendants were ordered not to 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 five of the Defendants had been found liable for FCA violations, including Ted
Cain, this court, troubled by the actions of Defendants in transferring assets, as well as
Defendants’ conduct over the course of the proceedings, included the provision against
dissipating assets in the judgment entered in this cause.
During this time, Defendants’ attorneys submitted to Defendants a bill for the
attorneys’ litigation services. That bill required this court’s approval pursuant to the
4

provisions of the judgment, which provided as follows: “The Court continues its Order
forbidding the defendants from transferring, dissipating, selling or disposing of any of their
assets.” Judgment [doc. no. 409 p. 3]
Defendants subsequently filed a Motion for Approval to Pay Attorneys’ Fees and
Expenses” [doc. no. 410], which this court granted in part and denied in part. This court
stated:
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.
Order [doc. no. 458 p. 10].
This court concluded by requiring three things of Defendants in order for the court to
authorize this payment to their attorneys:
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.
Order [doc. no. 458 p. 10].
In partial obedience to the above, Defendants’ attorneys have provided a detailed
itemized statement of their fees and expenses; but, they have not provided for the court an
explanation for the source of the funds from which Defendants will pay the fees. Nor have
Defendants provided an explanation of the inconsistent positions represented to the court
relative to Cain’s ability to pay the mortgage on the hospital property.

5

All of the matters above discussed cause this court to pause before authorizing release
of these funds. See U.S. v. Compassionate Home Care Servs., Inc., 2017 WL 9535169 **1-2
(E.D.N.C. Sept. 8, 2017 and U.S. v. Teevens, 862 F. Supp. 1200, 1225 & n.46 (D.Del. 1992).
Other matters intrude into this analysis, matters which may affect the need for
affirmative measures to preserve the assets, including: 1) defendants claim Stone County
Hospital is now defunct, that it is non-existent, yet Ted Cain testified that it is Stone County
Hospital that is paying the legal fees for all defendants; 2) bank statements from Wiggins
Acute Care showing that Ted Cain writes a check to himself for the amounts by which the
lease payments from Memorial Hospital exceed the mortgage payment amount, around
$25,000 to $29,000 monthly (despite his contention that these funds had to be used for
equipment leases and other obligations regarding the hospital; 3) the acknowledgment by
Ted Cain and his lawyers that Ted Cain has control over the trusts he said were created for
the benefit of his children; 4) the historical fraud record of these Defendants who already
have been found to have committed fraud against the United States in the amount of millions
of dollars, such that this court must be skeptical about their representations concerning
finances and assets; 5) the re-enlistment of Ted Cain’s Ocean Springs residence for sale even
after this court ordered that no assets should be sold or transferred; 6) the seeming
contradiction here between the Defendants’ alleged inability to pay the mortgage without the
lease payment, on the one hand, and the ability to pay a quarter of a million dollars in legal
fees on the other.
In their response objecting to payment of these attorneys’ fees, the United States
reminds the court that it is a creditor with a $30 plus million-dollar judgment against these

6

Defendants. This court must, therefore, be mindful that the payment to these attorneys will
be made from funds that that might otherwise be available to satisfy the judgment.
This court also notes that Defendants Ted and Julie Cain are defendants in another,
related lawsuit pending before this court, Aldridge v. Cain, et al, 1:20-CV-321 HTW-MTP.
That lawsuit, filed in 2020, has been brought by James Aldridge (Relator in the instant case),
against Ted Cain; Julie Cain; HTC Enterprises, LLC; HTC Elite, L.P.; Evan Trace Cain GST
Trust; Logan Patrick Cain GST Trust; and Lucinda K. Sloan. Plaintiff there alleges that Ted
and Julie Cain fraudulently transferred assets with actual intent to hinder, delay or defraud
the judgment creditors in this case, namely the United States and James Aldridge.
This court, based on Defendants’ incomplete response to the courts’ inquiry, and for
all of the reasons above, remains reluctant to authorize payment of the attorneys’ fees at
issue. This court, therefore, will conduct a hearing on these issues on July 13, 2021, at 9:30
a.m.
SO ORDERED AND ADJUDGED, this the 18th day of June, 2021.
s/ HENRY T. WINGATE___________
UNITED STATES DISTRICT JUDGE

7