Sheehan v. Saoud et al

Filing 136

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT FRED SCOTTS MOTION TO ALTER OR AMEND ORDER DKT. NO. 104 , AND PARTIALLY AMENDING EARLIER MEMORANDUM OPINION AND ORDER DKT. NO. 103 TO DISMISS SAOUDS CROSSCLAIM AGAINST SCOTT WITH PREJUDICE. Signed by District Judge Irene M. Keeley on 2/18/2015. (copy counsel of record)(jmm)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
MARTIN P. SHEEHAN, Trustee of
the Bankruptcy Estate of AGS, Inc.,
Plaintiff,
v.

//

CIVIL ACTION NO. 1:11CV163
(Judge Keeley)

ALLEN G. SAOUD, FRED D. SCOTT,
WEST VIRGINIA DERMATOLOGY
ASSOCIATES, INC., and CENTRAL
WEST VIRGINIA DERMATOLOGY
ASSOCIATES, INC.,
Defendants.

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT FRED SCOTT’S
MOTION TO ALTER OR AMEND ORDER [DKT. NO. 104], AND PARTIALLY
AMENDING EARLIER MEMORANDUM OPINION AND ORDER [DKT. NO. 103] TO
DISMISS SAOUD’S CROSSCLAIM AGAINST SCOTT WITH PREJUDICE
I. Procedural Background
On January 28, 2015, the Court entered a Memorandum Opinion
and Order that denied in part and granted in part the motion for
summary judgment filed by the defendant, Fred Scott (“Scott”) (Dkt.
No. 103). As an integral part of that opinion, the Court recounted
that Scott had not been adjudged a “victim” in the related criminal
case of the co-defendant, Allen G. Saoud (“Saoud”).

Id. at 16.

On February 9, 2015, Scott filed a motion under Fed. R. Civ.
Pro. 59(e) to alter or amend the Memorandum Opinion and Order,
arguing that, at Saoud’s sentencing, pursuant to the Mandatory
Victim Restitution Act, 18 U.S.C. § 3663A, the Court found that
Scott was a victim of Saoud’s criminal conduct.

Based on that,

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
Scott contends that he is entitled to summary judgment as to
Saoud’s crossclaim against him (Dkt. No. 104).
Scott styled his motion as one under Rule 59(e).

As co-

defendant Saoud argues, however, Rule 59(e) is not the proper
vehicle to correct its error, because its Memorandum Opinion and
Order denying Scott’s motion for summary judgment was not an order
of final judgment.

Therefore, the Court CONSTRUES Scott’s motion

as one under Rule 60.

For the reasons that follow, the Court

confesses its error regarding Scott’s status as a victim, and
GRANTS Scott’s motion to amend or alter, but does so under Fed. R.
Civ. Pro. 60(b)(1) (Dkt. No. 104).1
II.

Discussion of Law

Federal Rule of Civil Procedure 60(b)(1) allows the Court to
relieve a party from a final judgment, order, or proceedings for
“mistake, inadvertence, surprise, or excusable neglect.”
Civ. Pro. 60(b)(1).

Fed. R.

See Parks v. U.S. Life and Credit Corp, 677

F.2d 838, 839-40 (11th Cir. 1982) (“The ‘mistakes’ of judges may be
remedied under [Rule 60(b)(1)].”).
1

A movant under Rule 60(b) must

This decision only affects Scott’s motion for summary
judgment as to Saoud’s crossclaim; the Court’s decision as to
Scott’s motion for summary judgment as to the amended complaint,
and as to Sheehan’s motion for summary judgment still stands.
2

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
“have a meritorious claim or defense and the opposing party must
not be unfairly prejudiced by having the judgment set aside.”
Aikens v. Ingram, 652 F.3d 496, 501 (4th Cir. 2011).

Finally, a

motion brought under Rule 60(b) must be filed within a “reasonable
time,” defined as “no more than a year after entry of the judgment
or order or date of the proceeding.”
The

Court

incorporates

the

Fed. R. Civ. Pro. 60(c)(1).2

facts

and

procedural

history

recounted in its earlier Memorandum Opinion and Order, but adds one
key fact (Dkt. No. 103 at 2-10).

Following Saoud’s conviction and

during his sentencing hearing, the Court found that Scott was a
victim

of

Saoud’s

criminal

(Sentencing Transcript at 111).

scheme

entitled

to

restitution

“The basis for the decision that

Dr. Scott is a victim is the decision of the jury on the count of
the offense, which is the count of conviction on which Dr. Scott
rests his right to restitution. That’s already been decided by the
jury.”

Id. at 111.

Consequently, the Court awarded Scott, as

restitution, $92,603.00 in attorneys’ fees.

2

Id. at 113.

The Court entered its Memorandum Opinion and Order on
January 28, 2015 (Dkt. No. 103) and Scott filed his motion to amend
or correct on February 9, 2015 (Dkt. No. 104). Scott’s motion was
timely. Fed. R. Civ. Pro. 60(c)(1).
3

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]

A.

Scott’s Motion for Summary Judgment as to Saoud’s Counterclaim
In his motion to alter or amend, Scott argues that, because he

was a victim of Saoud’s fraudulent scheme, he is entitled to
summary judgment on Saoud’s crossclaim against him (Dkt. No. 104).
The Court agrees.

In his crossclaim, Saoud seeks damages of

$1,600,000 from Scott stemming from the purported contract between
Saoud and CWVD (Dkt. No. 88 at 7).

Saoud claims that Scott “was to

begin making payments starting March 1, 2006,” but “failed to make
any payment on the note as agreed” and “failed to use best efforts
in keeping the corporation functioning properly and syphoned off
cash for his own use rather than paying defendant Saoud as provided
in the agreement.”

Id.

intended to repay him.

Saoud also alleges that Scott never
Id.

His crossclaim asserts claims for

breach of contract and breach of the duty of good faith and fair
dealing.

Id. at 8-9.

According to Scott, Saoud is estopped from arguing Scott
breached any contract because the jury in Saoud’s criminal case
determined that contract to be fraudulent (Dkt. No. 104 at 6-7).
To rule otherwise, he argues, would create a situation where he,
the victim of Saoud’s criminal scheme, could be forced to pay
consideration for a sale that has been adjudicated a sham.
4

Id.

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
A party seeking to rely on collateral estoppel must establish
five elements.

These include:

(1) that the issue previously

decided is identical to the issue in the current action; (2) that
the issue was actually determined in the previous proceeding; (3)
that the determination of the issue was “a critical and necessary
part of the decision in the prior proceeding; (4) that the prior
judgment is final and valid;” and, “(5) that the party against whom
collateral estoppel is asserted had a full and fair opportunity to
litigate the issue” in the prior case.

Collins v. Pond Creek

Mining Co., 468 F.3d 213, 217 (4th Cir. 2006) (internal citations
omitted).
When an issue is decided in a criminal action and collateral
estoppel is asserted in a later civil action, a court must ask
“whether the issue for which estoppel is sought was ‘distinctly put
in issue and directly determined’ in the criminal action.” Wolfson
v. Baker, 623 F.2d 1074, 1078 (5th Cir. 1980) (quoting Emich Motors
Corp. v. General Motors Corp., 340 U.S. 558, 569, 71 S.Ct. 408, 414
(1951)).

When a criminal conviction is based on a guilty verdict,

“‘issues which were essential to the verdict must be regarded as
having been determined by the judgment.’” Id.

5

The Court agrees

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
with Scott that Saoud’s criminal judgment, including the order of
restitution to Scott, is valid and final. Berman v. United States,
302 U.S. 211, 212, 58 S.Ct. 164, 166 (1937) (“Final judgment in a
criminal case means sentence.

The sentence is the judgment.”).

Additionally, Scott’s liability on the contract at issue was
determined by the Court as an integral and necessary part of its
judgment regarding the restitution owed by Saoud.

Generally, when

a criminal conviction is based on a guilty verdict, “‘issues which
were essential to the verdict must be regarded as having been
determined by the judgment.’”

Wolfson, 623 F.2d at 1078 (quoting

Emich Motors Corp., 340 U.S. at 569, 71 S.Ct. at 414).
In Saoud’s criminal case, the jury convicted Saoud of five
counts of health care fraud (Case No. 1:12CR113, Dkt. No. 115). It
is therefore beyond debate that, on each of the five counts, the
government proved beyond a reasonable doubt that Saoud “knowingly
and willfully” executed, or attempted to execute, a scheme or
artifice (1) “to defraud any health care benefit program,” or (2)
to

obtain

“by

means

of

false

or

fraudulent

pretenses,

representations, or promises, any of the money or property owned
by, or under the custody or control of, any health care benefit

6

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
program,” in connection with either the delivery of or payment for
health care benefits.

18 U.S.C. § 1347.

Inherent in the five counts of conviction are the following
facts: (1) that Saoud asked Scott to sign a document containing
false and misleading statements about CWVD’s financial obligations
to Saoud and AGS, and Saoud’s financial and managerial interests in
CWVD and AGS; (2) that Saoud executed a purchase agreement to sell
CWVD

to

Georgia

Daniel;

(3)

that

Saoud

executed

a

purchase

agreement in which Dr. Peasak agreed to purchase CWVD from Daniel;
(4) that Saoud signed an affidavit making various representations
about AGS’ operations and records, and indicating that he was
President; and, (5) that Saoud falsely stated that he was not an
officer of AGS and did not have a relationship with CWVD in a
letter to the Internal Revenue Service (Case No. 1:12CR113, Dkt.
No. 56 at 7).
In

the

second

superseding

indictment,

the

government

additionally charged that, as part of the scheme in Counts One
through Five, (1) Saoud transferred ownership of CWVD to Scott for
$ 1.6 million, but that Saoud did not receive any payment for CWVD;
(2) all of AGS’ staff and patients switched over to CWVD after the
“sale”;

(3)

Saoud

continued

to
7

actively

participate

in

the

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
management and administration of CWVD after the “sale”; (4) Saoud
continued to receive contractual benefits and income from CWVD
after the “sale”; (5) Saoud engaged in a sham sale of AGS to
Daniel, a nurse practitioner, for $ 1 million; and (6) that AGS and
CWVD received approximately $ 2 million in Medicare and Medicaid
reimbursements between September 2005 and October 2010 (Case No.
1:12CR113, Dkt. No. 56 at 4-6).

The jury convicted Saoud on all

five counts, each of which included as an essential element the
above-described “scheme or artifice.”
At

sentencing,

the

United

18 U.S.C. § 1347.

States

identified

Scott

as

a

“victim” of Saoud’s health care fraud scheme, and sought an order
of restitution on his behalf (Case No. 1:12CR113, Dkt. No. 149).
United States v. Freeman, 741 F.3d 426, 434-35 (4th Cir. 2014)
(victims must be victims of the offense of conviction).
the

jury’s

verdict

and

the

government’s

argument,

Based on
the

Court

concluded that Scott was a victim of Saoud’s scheme and entitled to
restitution.

In doing so, it necessarily found from the jury’s

verdict that Saoud’s acts were “either conduct underlying an
element

of

furtherance

the
of

offense
a

scheme,

of

conviction,

conspiracy,

or

or

an

act

pattern

of

taken

in

criminal

activity that is specifically included as an element of the offense
8

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
of conviction.” United States v. Blake, 81 F.3d 498, 506 (4th Cir.
1996).

Clearly, the conclusion that Scott was a victim of Saoud’s

“scheme or artifice” entitled to restitution was a matter directly
determined in the criminal action.

Wolfson, 623 F.2d at 1078.

The only element of collateral estoppel remaining for analysis
is whether Saoud had a full and fair opportunity to litigate his
claims against Scott in his criminal case.

Saoud was on trial for

the crimes described in Counts One through Five, including his
purported “sale” of CWVD to Scott, now the subject of his cross
claim.

He pleaded not guilty to those counts, and put on a

vigorous defense at trial.

He therefore not only had a full and

fair opportunity to litigate the legitimacy of the contract with
Scott, he also chose to do so.
Concluding that all five elements of collateral estoppel have
been met, the Court AMENDS Part III.B. of its Memorandum Opinion
and Order (Dkt. No. 103),

GRANTS

Scott’s motion for summary

judgment as to Saoud’s crossclaim, and DISMISSES the crossclaim
with prejudice.

9

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
B.

Scott’s Motion for Summary Judgment as to Sheehan’s
Amended Complaint

Although Scott’s motion to alter or amend does not seek to
revisit the Court’s conclusion denying in part and granting in part
his motion for summary judgment as to Sheehan’s amended complaint,
the Court finds it appropriate to clarify the record on this issue
(Dkt. No. 104 at 7).

Scott sought summary judgment on all the

claims alleged against him in Counts II, III, and IV of the amended
complaint (Dkt. No. 103 at 12).3

The Court has granted his motion

as to Count IV, having ruled in Part III.A.2. of its Memorandum
Opinion and Order that Count IV failed as a matter of law.
24.

Id. as

That decision remains unchanged.
As

to

Count

III,

the

Court

rejected

Scott’s

collateral

estoppel argument, finding “a question of material fact concerning
whether Scott was a participant in the fraudulent transfers that
dissipated AGS’ assets, as Sheehan contends, or whether, as Scott
assert[ed], he was victim of Saoud’s criminal conduct.” Id. at 15.
The Court’s error regarding Scott’s status as victim of Saoud’s
criminal conduct does not change this conclusion.

The party

against whom collateral estoppel is asserted must have had a full

3

Sheehan has abandoned Count II (Dkt. No. 122 at 21).
10

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
and fair opportunity to litigate the issue in a prior case.
Collins, 468 F.3d at 217.

This is so even if an issue is decided

in a criminal action and collateral estoppel is asserted in a later
See Wolfson, 623 F.2d at 1078-1080.

civil action.

As the Court

has already determined, AGS was not a party to Saoud’s criminal
case, and thus did not have a full and fair opportunity to litigate
these issues (Dkt. No. 103 at 19-20).
Notably, collateral estoppel was the only applicable argument
Scott mounted in his summary judgment motion.

Given the Court’s

recognition that he was deemed a victim of Saoud’s criminal
conduct, it is unclear whether material issues of fact remain as to
Scott’s liability to Sheehan on Count III.
In conclusion, the Court:
1.

GRANTS Scott’s motion to alter or amend the memorandum opinion
and order (Dkt. No. 104); and,

2.

AMENDS Part III.B. of its memorandum opinion and order (Dkt.
No. 103), GRANTS Scott’s motion for summary judgment as to
Saoud’s

crossclaim,

and

DISMISSES

PREJUDICE.
It is so ORDERED.

11

that

crossclaim

WITH

SHEEHAN V. SAOUD

1:11CV163

ORDER GRANTING DEFENDANT FRED SCOTT’S MOTION TO ALTER
OR AMEND ORDER [DKT. NO. 104] AND PARTIALLY AMENDING MEMORANDUM
OPINION AND ORDER [DKT. NO. 103]
The Court directs the Clerk to transmit copies of this Order
to counsel of record.
DATED: February 18, 2015.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE

12