Clanton et al v. Brogdon et al

Filing 53

ORDER denying 37 Defendants Boyd Gentry and Adcare Entities' Motion to Dismiss Plaintiffs' Fraud Claim (as more fully set out). Signed by Honorable Vicki Miles-LaGrange on 11/21/2014. (ks)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
TROY CLANTON, ROSE RABON,
and SOUTH START SERVICES, INC.,
Plaintiffs,
v.
CHRIS BROGDON,
CONNIE BROGDON,
KENMETAL, LLC,
SENIOR NH, LLC,
BAN NH, LLC,
LIVING CENTER, LLC,
OAK LAKE, LLC,
ADCARE OKLAHOMA
MANAGEMENT, LLC,
ADCARE HEALTH SYSTEMS, INC.,
and BOYD GENTRY,
Defendants.

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Case No. CIV-13-717-M

ORDER
Before the Court is Defendants Boyd Gentry (“Gentry”) and Adcare Entities’1
(collectively known as “Defendants”) Motion to Dismiss Plaintiffs’ Fraud Claim, filed April 4,
2014. On April 25, 2014, plaintiffs responded, and on May 2, 2014, Defendants replied. Based
on the parties’ submissions, the Court makes its determination.
I.

Background2
Plaintiffs allege that on around July 4, 2009, defendant Chris Brogdon (“Brogdon”)

proposed an agreement between himself and plaintiff Troy Clanton (“Clanton”). Brogdon
solicited Clanton and plaintiff Rose Rabon (“Rabon”) to assist him in locating and purchasing
1

Adcare Entities consist of defendants Adcare Oklahoma Management LLC (“Adcare
Oklahoma”), AdCare Health Systems, Inc. (“Adcare”), and Adcare Holdings, LLC.
2

The alleged facts are taken from plaintiffs’ Second Amended Complaint.

nursing homes in Oklahoma. In return for Clanton and Rabon’s assistance, Brogdon agreed to
give plaintiff South Start Services, Inc.3 (“SSSI”) the management contracts for the nursing
homes. Plaintiffs allege that Brogdon made it clear that he intended to purchase the nursing
homes personally and not for defendant Adcare.4
Clanton and Rabon located two portfolios of homes, each consisting of five nursing
homes, which were known as the Blue Dolphin portfolio and the Harty portfolio. Clanton and
Rabon also located two independent nursing homes, Quail Creek and Companion Specialized
Health Care. Brogdon acquired the Blue Dolphin portfolio through the Brogdon entities, five
newly formed LLCs5. Clanton and Rabon completed the Certificate of Need Applications6
(“CON”) for the Blue Dolphin homes, which contained a management agreement between each
Brogdon entity and SSSI stating that SSSI would manage the nursing home. Plaintiffs also allege
they assisted Brogdon with getting financing for the Blue Dolphin portfolio and assisted with the
purchase of the Harty portfolio. Plaintiffs further allege that in reliance on Brogdon’s agreement
that SSSI would be managing the acquired nursing homes, plaintiffs engaged in a variety of
activities, in addition to acquiring the CON for the Blue Dolphin portfolio, which included:
“locating the [nursing] homes, touring various [nursing] homes, negotiating starting sales prices,
3

Clanton and Rabon formed SSSI in August of 2007 for the purpose of soliciting
management contracts to operate nursing homes.
4

At the time of the events in this action, Brogdon was an equity holder in Adcare and
served as Adcare’s Chief Acquisition Officer for the acquisition of nursing homes. He also
owned a number of nursing homes personally or through entities controlled by him.
5

These LLCs, which were owned by Brogdon’s wife, defendant Connie Brogdon, are
defendants Kenmetal, LLC, Senior NH, LLC, Ban NH, LLC, Living Center, LLC, and Oak
Lake, LLC.
6

A Certificate of Need Application is a regulatory application through the Oklahoma
Department of Health, which was required to transfer the nursing homes.
2

and assisting with acquiring financing.” Second Am. Compl. ¶35. Plaintiffs also allege they
incurred significant expenses in assisting Brogdon with acquiring the nursing homes.
On or about July 13, 2011, plaintiffs allege that Brogdon notified plaintiffs that he would
not be honoring the management contracts with SSSI and that Adcare would be purchasing the
nursing homes. Further, plaintiffs allege that on July 28, 2011, Adcare Oklahoma, a Georgia
limited liability company, was registered with the Oklahoma Secretary of State, and on July 29,
2011, when licenses for the Blue Dolphin homes were issued, Adcare Oklahoma began
managing the Blue Dolphin homes. Plaintiffs allege that Brogdon needed plaintiffs’ expertise in
obtaining the CONs on the Blue Dolphin nursing homes and that Defendants knew the nursing
homes would ultimately be owned and managed by Adcare, not SSSI.
Plaintiffs also allege that Gentry, CEO of Adcare, became aware of Brogdon’s alleged
intention to acquire the nursing homes for Adcare and to replace SSSI with an Adcare
management company. Further, plaintiffs allege that Gentry assisted in “shifting all of the
purchases to Adcare, in breaching the management agreements with SSSI and transferring them
to Adcare-owned entity, Adcare Oklahoma Management, LLC.” Second Am. Compl. ¶52.
Defendants now move, pursuant to Federal Rules of Civil Procedure 8 and 9(b), to
dismiss count 5 of plaintiffs’ Second Amended Complaint.7

7

On April 18, 2014, the Court granted plaintiffs leave to file a Second Amended
Complaint to correct a defendant party name. Defendants’ responsive pleadings including their
motion to dismiss currently before the Court were unaffected. While Defendants refer to
plaintiffs’ Amended Complaint in their motion to dismiss, in this Order, the Court will be
referring and citing to plaintiffs’ Second Amended Complaint [docket no. 41].
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II.

Standard of Dismissal
Rule 9(b) provides, in pertinent part: “In alleging fraud or mistake, a party must state

with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). “At a
minimum, Rule 9(b) requires that a plaintiff set forth the ‘who, what, when, where, and how’ of
the alleged fraud . . . and must set forth the time, place, and contents of the false representation,
the identity of the party making the false statements and the consequences thereof.” U.S. ex rel.
Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 726-27 (10th Cir. 2006)
(internal quotations and citations omitted). Further,
Rule 9(b) does not . . . require the pleading of detailed evidentiary
matter, nor does it require any particularity in connection with an
averment of intent, knowledge, or condition of mind. It only
requires identification of the circumstances constituting fraud or
mistake. That requirement means . . . that individual plaintiffs
should identify particular defendants with whom they dealt directly
. . . ; that individual plaintiffs should designate the occasions on
which affirmative statements were allegedly made to them - and by
whom; and that individual plaintiffs should designate what
affirmative misstatements or half-truths were directed to them –
and how.
Seattle-First Nat’l Bank v. Carlstedt, 800 F.2d 1008, 1011 (10th Cir. 1986).
III.

Discussion
Defendants assert that plaintiffs have failed to plead their fraud claims against Defendants

with the requisite particularity required by Rule 9(b). Specifically, Defendants contend that
plaintiffs never allege that Defendants made any misrepresentations to plaintiffs. Plaintiffs assert
their fraud claim has been alleged with sufficient specificity against each defendant to satisfy
Rule 9(b).
Having carefully reviewed plaintiffs’ Second Amended Complaint, and presuming all of
plaintiffs’ factual allegations are true and construing them in the light most favorable to
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plaintiffs, the Court finds that at this stage of the litigation, plaintiffs’ fraud claim against
Defendants satisfies Rule 9(b)’s particularity requirements. Plaintiffs have alleged a factual
scenario in which Defendants were a part of a fraudulent scheme initiated by Brogdon. Plaintiffs
allege that Brogdon, Adcare’s Chief Acquisition Officer, solicited plaintiffs’ assistance in
locating nursing homes in Oklahoma for him to purchase personally. Further, plaintiffs allege
that in exchange for plaintiffs’ assistance, Brogdon agreed SSSI would receive the management
contracts for the nursing homes acquired. Once the nursing homes were located and regulatory
applications were completed, plaintiffs allege that Brogdon informed them that he would not be
honoring his agreement to give SSSI the management contracts of the newly acquired nursing
homes, and instead the management contracts went to Adcare Oklahoma.
As to Defendants’ involvement in Brogdon’s alleged scheme, plaintiffs allege:
52.

Upon information and belief, at some point prior to
July 13, 2011, Gentry became aware that Brogdon
intended to acquire the homes for Adcare and
replace SSSI with an Adcare management
company. Thereafter, Gentry assisted Brogdon in
shifting all of the purchases to Adcare, in breaching
the management agreements with SSSI and
transferring them to an Adcare-owned entity,
Adcare Oklahoma Management, LLC.

53.

Boyd Gentry, both before and after becoming
affiliated with Adcare, was intimately involved with
Brogdon’s plans with Plaintiffs, was aware of the
promises made to Plaintiffs, and made
representations regarding Plaintiffs’ management of
the homes they relied upon.

54.

After becoming affiliated with Adcare, Gentry
questioned Plaintiffs about how they would run the
facilities with respect to the accounting and asked
Plaintiffs to contact Adcare’s Vice President of
Finance to explain it. Subsequently, after being
provided with that information, Adcare created a

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subsidiary to manage the homes in place of
Plaintiffs.
55.

At least as early as July 2010, Gentry was involved
with the deal and regularly communicating with
Plaintiffs regarding various aspects of their work on
the transactions. He also came to Oklahoma to tour
some of the homes with Brogdon.

56.

Gentry made a least two visits to Oklahoma which
were related to the transactions at issue in this case.
During these visits he, along with Brogdon,
continued to perpetuate the myth that Plaintiffs
would be managing the facilities.

57.

Gentry was involved with the meetings involving
Brogdon and the Plaintiffs at which the
representations regarding Plaintiffs’ management
were made. These included a meeting in Atlanta in
March 2010 and two meetings in Oklahoma in mid2010. Gentry was on the Adcare Board of Directors
at the time of all three meetings.

61.

Both Brogdon and Gentry were in email
communication throughout the acquisition process,
including the process of creating the management
agreements that were executed by the entities
owned by Connie Brogdon and managed by Chris
Brogdon.

62.

These agreements were used to obtain regulatory
approval, but after that, Plaintiffs were terminated
and an entity created by Adcare, of which Gentry
was President and CEO at the time, was given the
contracts instead.

Sec. Amen. Compl. ¶¶ 53-57 & 61-62. Plaintiffs further allege that the Adcare Entities were
involved in Brogdon’s alleged scheme by fronting nearly $60,000 in closing costs for the Blue
Dolphin portfolio, being directly involved in the purchasing and acquisitions of some of the
nursing homes plaintiffs located for Brogdon, and obtaining the management contracts for the
nursing homes promised to plaintiffs by Brogdon. In reviewing plaintiffs’ Second Amended

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Complaint in total, the Court finds these alleged facts are sufficient for this Court to draw the
reasonable inference that Brogdon, along with Defendants, continued to misrepresent to
plaintiffs that in exchange for assistance with locating nursing homes in Oklahoma for Brogdon
to purchase personally, plaintiffs would receive the management contracts of the located nursing
homes.
IV.

Conclusion
Accordingly, for the reasons set forth above, the Court DENIES Defendants Boyd Gentry

and Adcare Entities’ Motion to Dismiss Plaintiffs’ Fraud Claim [docket no. 37].
IT IS SO ORDERED this 21st day of November, 2014.

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