United States of America ex rel. et al v. D.S. Medical LLC et al

Filing 581

MEMORANDUM AND ORDER re: 562 MOTION to Quash Multiple Abstracts of Judgment filed by Defendant Deborah Seeger, Defendant D.S. Medical LLC, 561 MOTION to Quash Abstracts of Judgment Improperly Obtained Against Intervenors fi led by Intervenor Midwest Family Care, LLC, Intervenor DS Enterprises, LLC, Intervenor Fonn Enterprises, LLC, 560 MOTION to Intervene for the Limited Purpose of Seeking to Quash Certain Abstracts of Judgment Improperly Obtained Against Intervenors filed by Intervenor Midwest Family Care, LLC, Intervenor DS Enterprises, LLC, Intervenor Fonn Enterprises, LLC. IT IS HEREBY ORDERED that the motions of DS Enterprises, LLC, Midwest Family Care, LLC, and Fonn Enterprises, LLC t o intervene and to quash the abstracts of judgment obtained against them are both GRANTED. ECF Nos. 560 & 561. The abstracts of judgment entered against these parties (ECF Nos. 548 through 558) shall be QUASHED. IT IS FURTHER ORDERED that Defendants' motion to quash abstracts of judgment is DENIED. ECF No. 562. Signed by District Judge Audrey G. Fleissig on 11/30/20. (CSG)

Case: 1:12-cv-00004-AGF Doc. #: 581 Filed: 11/30/20 Page: 1 of 10 PageID #: 12834

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
SOUTHEASTERN DIVISION

UNITED STATES OF AMERICA,
ex rel. PAUL CAIRNS, et al.,
Plaintiff,
vs.
D.S. MEDICAL, L.L.C., et al.,
Defendants.

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Case No. 1:12CV00004 AGF

MEMORANDUM AND ORDER
This qui tam action under the False Claims Act (“FCA”) is before the Court on
three post-judgment motions regarding the abstracts of judgment obtained by the
Government and entered by the Clerk of Court pursuant to 28 U.S.C. § 3201. Section
3201, a provision of the Federal Debt Collection Procedures Act (“FDCPA”), provides
that:
A judgment in a civil action shall create a lien on all real property of a
judgment debtor on filing a certified copy of the abstract of the judgment in
the manner in which a notice of tax lien would be filed under paragraphs (1)
and (2) of section 6323(f) of the Internal Revenue Code of 1986.
28 U.S.C. § 3201(a).
There are four Defendants in this action—two individuals and two limited
liability corporations of which the individuals were alleged to be the single members and
agents, respectively: Dr. Sonjay Fonn and Midwest Neurosurgeons, LLC (“Midwest”);

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and Debra Seeger and D.S. Medical, LLC (“D.S. Medical”). The abstracts of judgment
were entered against certain of these Defendants but also against three non-parties
affiliated with Defendants. The three non-parties are DS Enterprises, LLC (“DS
Enterprises”), Midwest Family Care, LLC (“Midwest Family Care”) and Fonn
Enterprises, LLC (“Fonn Enterprises”) (collectively, “Movants”).
Movants have moved to intervene in this action, pursuant to Federal Rule of Civil
Procedure 24 for the limited purpose of seeking to quash the abstracts of judgment
entered against them, and have also moved to quash those abstracts of judgment. ECF
Nos. 560 & 561. Defendants have separately moved to quash all of the abstracts of
judgments on the ground that they were prematurely filed. ECF No. 562. For the reasons
set forth below, the Court will grant Movants’ motions and deny Defendants’ motion.
BACKGROUND
This case was submitted to a jury on three claims, corresponding to the three counts
of the Government’s complaint in intervention. The claims were that:
(1) Seeger and D.S. Medical gave kickbacks to Fonn and Midwest in
exchange for Fonn and Midwest arranging the purchase of spinal implants
(used by Fonn in his surgeries) through D.S. Medical;
(2) all four Defendants solicited or received kickbacks from two implant
manufacturers in exchange for arranging the purchase of the manufacturers’
products, with respect to 53 claims for reimbursement; and
(3) all four Defendants conspired to violate the FCA by entering into an
agreement that involved Defendants soliciting or receiving kickbacks from
six implant manufacturers (including the two referenced in Count 2) in
exchange for arranging the purchase of those companies’ products, with
respect to 223 claims for reimbursement.
Based on the jury’s verdict and the parties’ numerous post-trial motions, the Court
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entered judgment on September 25, 2018, as follows: Count I in favor of Defendants;
Count II in favor of Defendants Seeger and D.S. Medical; and against Defendants Fonn
and Midwest, jointly and severally, in the amount of $303,529.50, with civil penalties
assessed against Fonn in the amount of $27,500, and against Midwest in the amount of
$16,500; and Count III against the four Defendants, jointly and severally, in the amount
of $5,495,931.22. See ECF No. 465.
The Court also ordered the Government to file a notice no later than October 3,
2018, as to whether it intended to proceed with its two remaining equitable claims, which
were not part of the trial: Count IV (payment under mistake of fact) and Count V (unjust
enrichment) of the Government’s complaint in intervention. The Government filed such
a notice on October 2, 2018 (ECF No. 466), asking that the Court dismiss those two
claims without prejudice, pursuant to Federal Rule of Civil Procedure 41(a)(2).
Defendants did not oppose the Government’s motion. However, in light of numerous
other post-trial filings by the parties, the Court inadvertently failed to rule on the
Government’s motion.
On June 30, 2020, the Government filed numerous abstracts of judgment, which
were signed and entered by the Clerk of Court the same day. See ECF Nos. 527-558.
Certain of these abstracts of judgment were entered against Movants as “nominees” of
Defendants. See ECF Nos. 548-558.
On July 7, 2020, Defendants filed notices of appeal in the United States Court of
Appeals for the Eighth Circuit. While the case was pending on appeal, Movants filed the
instant motion to intervene as a matter of right or, alternatively, permissively for the
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limited purpose of protecting their property interests by seeking to quash the abstracts of
judgment entered against them. Movants also moved to quash those abstracts of
judgment, arguing that “while certain of the defendants named in the instant action may
have direct or indirect membership interests in Movants, such defendants have no right or
interest in any real property owned by Movants.” ECF No. 561-1 at 4. Thus, Movants
argued that § 3201 does not permit any abstract of judgment to be entered against them.
Separately, Defendants moved to quash the abstracts of judgment on the ground
that they were prematurely filed as no final judgment was entered in this case in light of
the outstanding equitable claims that were still pending.
The Government has opposed all three motions. In its opposition to Movants’
motion to intervene, the Government argued that intervention is not warranted under Rule
24 because Movants “were not directly involved in the spinal surgeries or Medicare and
Medicaid program payments that were at issue in this case,” “the real estate that the
Movants[] have title to was not the subject of this False Claims Act case,” and Movants’
interests are adequately represented by Defendants, given Fonn’s and Seeger’s close
connections to and interests in Movants. ECF No. 567 at 1-2. The Government further
argued that Movants should not be permitted to intervene because the law firm
representing Movants on this motion is Thompson Coburn LLP, and a partner of that firm
testified as a witness at trial, creating a conflict of interest.
Alternatively, the Government argued that, if Movants were permitted to
intervene, their motion to quash should be denied. The Government argued that § 3201
should be read to permit enforcement of a judgment lien against property held by third
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parties as “nominees” of the judgment debtor. The Government contended that Movants
should be considered nominees, or alter egos, of Defendants because Defendants’ own
filings, such as Defendants’ motion for a stay pending appeal, represented that Fonn and
Seeger owned or controlled the Movants’ properties and because the evidence at trial
established that Fonn and Seeger did not operate their various LLCs with formality. The
Government further contended that the FDCPA has a broad reach, including permitting
the Government to void fraudulent transfers of assets by named parties to non-parties,
and as such, the Government should be able to place an abstract of judgment—which is
merely a lien or a security interest and does not involve the immediate seizure of
property—on Movants’ property.
As to Defendants’ motion to quash, the Government argued that the Court’s
September 25, 2018 Memorandum and Order entering judgment on Counts I, II, and III
should be considered a final judgment in light of the procedural history of this case.
After the instant motions were briefed, the Court held a telephone conference with
counsel to discuss the Government’s outstanding equitable claims, Counts IV and V. The
Court thereafter issued an Order, pursuant to Federal Rule of Civil Procedure 62.1(a),
indicating that if the Eighth Circuit were to remand for the limited purpose of allowing
the Court to rule on the Government’s outstanding and unopposed motion to voluntarily
dismiss Counts IV and V, the Court would grant that motion. ECF No. 573. On
September 1, 2020, the Eighth Circuit granted such a limited remand, ECF No. 574, and
the next day, the Court granted the Government’s motion and dismissed Counts IV and V
without prejudice, ECF No. 575.
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DISCUSSION
As an initial matter, the Court notes that, although Defendants have filed notices
of appeal divesting the Court jurisdiction over the matters on appeal, the Court “retains
jurisdiction to the extent necessary to enforce its judgment which has not been stayed.”
In re Grand Jury Subpoenas Duces Tecum, 85 F.3d 372, 375–76 (8th Cir. 1996).
Movants’ Motion to Intervene
Under Federal Rule of Civil Procedure 24(a)(2), a party is entitled to intervene as
of right if (1) it has a cognizable interest in the subject matter of the litigation; (2) the
interest may be impaired as a result of the litigation; and (3) the interest is not adequately
protected by the existing parties to the litigation. Fed. R. Civ. P. 24(a)(2). Rule 24(b)
permits the court to grant intervention upon a timely motion to intervene when the
applicant has a question of law or fact in common with the underlying litigation. Fed. R.
Civ. P. 24(b)(1)(B). Whether to grant permissive intervention rests within the court’s
discretion. S.D. ex rel. Barnett v. U.S. Dep’t of Interior, 317 F.3d 783, 787 (8th Cir.
2003). “Rule 24 should be construed liberally, with all doubts resolved in favor of the
proposed intervenor.” Nat’l Parks Conservation Ass’n v. U.S. E.P.A., 759 F.3d 969,
975 (8th Cir. 2014) (citation omitted).
Here, Movants undisputedly have an interest in the real property that is subject to
the abstracts of judgment, the Court does not believe that Defendants adequately
represent that interest, and in any event, the Court would permit Movants to intervene
under Rule 24(b). See United States v. TDC Mgmt. Corp., No. 89-1533 (JDB), 2012 WL
13075866, at *4 (D.D.C. July 30, 2012) (granting intervention as a matter of right or,
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alternatively, permissively, to a third party that “claim[ed] an interest in what the United
States ultimately seeks to garnish” under the FDCPA from the judgment debtor in a FCA
case); Tweedle v. State Farm Fire & Cas. Co., 527 F.3d 664, 671 (8th Cir. 2008)
(“[N]othing in Rule 24(a) precludes postjudgment or even post-appeal intervention.”); cf.
United States v. Sekendur, No. 03 C 807, 2015 WL 13861417, at *1-2 (N.D. Ill. Mar. 4,
2015) (denying third party’s post-judgment motion to intervene in an FCA case where the
only abstracts of judgment entered were against the defendants, and where the United
States had not yet initiated any proceedings to attach the third-party’s property).
Although the Government notes a potential conflict of interest of Movants’
counsel, the Government has not filed a motion to disqualify counsel and has not
adequately explained why disqualification of Movants’ counsel would preclude Movants’
intervention under Rule 24. In any event, the Court agrees with Movants that
disqualification would not be warranted here, where counsel’s representation is limited to
this post-judgment matter largely unrelated to the trial at which a different lawyer in
counsel’s firm testified. See E.D.Mo. L.R. 12.02 (adopting Missouri Rules of
Professional Conduct); Mo. R. Prof. Conduct § 4-3.7(b) (permitting a lawyer to act as
advocate in trial in which another lawyer in the lawyer’s firm is likely to be called as a
witness unless the situation poses a conflict of interest to an existing or former client).
For these reasons, the Court will grant Movants’ motion to intervene.
Movants’ Motion to Quash
Section 3201(a) provides that “[a] judgment in a civil action shall create a lien on
all real property of a judgment debtor on filing a certified copy of the abstract of the
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judgment in the manner in which a notice of tax lien would be filed under paragraphs (1)
and (2) of section 6323(f) of the Internal Revenue Code of 1986.” 28 U.S.C. § 3201(a)
(emphasis added). The Government admits that Movants are not judgment debtors here.
However, the Government argues that judgment liens under § 3201 should also attach to
the real property of “nominees” of judgment debtors. In support of this argument, the
Government cites to cases adopting the “nominee” theory for the purpose of federal tax
liens pursuant to 26 U.S.C. § 6321. See, e.g., Scoville v. United States, 250 F.3d 1198
(8th Cir. 2001); Holman v. United States, 505 F.3d 1060 (10th Cir. 2007).
But the language of § 6321 is much broader than § 3201, extending not just to real
property of the taxpayer but to “all property and rights to property, whether real or
personal, belonging to [the taxpayer].” 26 U.S.C. § 6321. And while § 3201 references
§ 6323 the tax lien statute for the purpose of determining the manner in which the lien
should be filed, it does not reference or incorporate the sweeping language of § 6321 for
determining the property to which the lien should attach.
For that reason, the only courts to have considered the issue have declined to
extend the nominee theory to § 3201. 1 See United States v. DeTar, No. 1:04-CV-749,
2009 WL 2252822, at *4 (W.D. Mich. July 28, 2009) (distinguishing the two lien
statutes, and noting that “the government offers no authority, and the Court is not aware
of any authority, for the proposition that a judgment lien attaches to the real property of a

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Although the Government correctly notes that it could reach a third party’s assets
by proving a fraudulent transfer from the judgment debtor, the Government has not
alleged that a fraudulent transfer occurred here.
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nominee or alter ego of a judgment debtor”) (emphasis in original); United States v.
Kotzev, No. 1:18-CV-1409, 2020 WL 1217153, at *4 (E.D. Va. Mar. 11, 2020) (noting
the same, and declining to extend the nominee theory to the judgment lien statute unless
the government provided supporting authority).
Moreover, even if this Court were to extend the nominee theory to the judgment
lien statute, the Government has not established that Movants are nominees of
Defendants. As the Eighth Circuit explained in Scoville, “[a] nominee is one who holds
bare legal title to property for the benefit of another,” and in considering whether a party
is a nominee, courts may look for “badges of fraud” such as those applicable to
fraudulent conveyance actions. See Scoville, 250 F.3d at 1202 (citing factors). Although
the Government points to Fonn’s and Seeger’s representations in their motion to stay that
they exercised some control over certain of the properties belonging to Movants, the
Government has not provided any evidence of fraud in connection with Movants’
acquisition of the property at issue. Nor has the Government offered sufficient evidence
to convince the Court that it should disregard corporate form or find that Movants are
alter egos of Fonn and Seeger. See HOK Sport, Inc. v. FC Des Moines, L.C., 495 F.3d
927, 935 (8th Cir. 2007) (“Disregarding the entity's corporate form under either the alter
ego doctrine or the remedy of piercing the corporate veil is an extraordinary measure that
should be reserved for exceptional circumstances.”); see also Mo. Rev. Stat. § 347.061.1
(“Property transferred to or otherwise acquired by a limited liability company becomes
property of the limited liability company. A member has no interest in specific limited
liability company property.”).
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For all of these reasons, the Court will grant Movants’ motion to quash.
Defendants’ Motion to Quash
Because the Court has now resolved all claims against all parties, the question of
finality raised in Defendants’ motion to quash is moot. Defendants have not raised any
other ground for quashing the abstracts of judgment. The Court will therefore deny
Defendants’ motion.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that the motions of DS Enterprises, LLC, Midwest
Family Care, LLC, and Fonn Enterprises, LLC to intervene and to quash the abstracts of
judgment obtained against them are both GRANTED. ECF Nos. 560 & 561. The
abstracts of judgment entered against these parties (ECF Nos. 548 through 558) shall be
QUASHED.
IT IS FURTHER ORDERED that Defendants’ motion to quash abstracts of
judgment is DENIED. ECF No. 562.

AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 30th day of November, 2020.

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