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Gratz v. Ruggiero

United States District Court, E.D. Pennsylvania

August 12, 2019



          Baylson, J.

         I. Introduction

         In this case, brought by the former COO of a nonprofit against the organization, related entities and officers, Plaintiff alleges that the organization employed a scheme to defraud Medicaid.

         Plaintiff Caryn Gratz has brought claims for violations of the Racketeer Influence and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c) and (d) against Defendants Kerey Ruggiero (now Kerey Parnes), Donna Moran, Staffmore, LLC (“Staffmore”), Behavioral Healthworks, LLC (“Healthworks”), Ruggiero LLC (“Ruggiero”), and Anthony A. Wolf, LLC (“Wolf”).[1] Plaintiff's claims arise from her employment at the Philadelphia Mental Health Clinic, Inc. (“PMHC”). Plaintiff worked at PMHC twice-from the late 1990s through 2004 or 2005 as Agency Director and again from January 2015 through February 2016 as the Chief Operating Officer (“COO”). (Def. Statement of Undisputed Material Facts (“SUMF”), ECF 84-2 ¶¶ 5-6.) The gist of Plaintiff's argument is that “Defendant Parnes, through her control of PMHC and the other Defendants, generated Medicaid payments through PMHC, then, with Moran's active assistance, rather than devoting these funds to PMHC's charitable purpose as required by law, diverted large portions of those payments to her own benefit.” (Resp., ECF 99 at 105.)[2]

         Defendants move for summary judgment on all claims. (Mot., ECF 84.) Defendants' motion argues primarily that Plaintiff lacks standing to bring a claim under RICO. (Mot. at 7-11.) Defendants also assert that they cannot be liable under RICO because Plaintiff has not identified predicate acts of racketeering, and that Plaintiff's RICO conspiracy claim fails because there is no participation claim. (Mot. at 11-13, 15-16.)[3]

         For the reasons that follow, Defendants' motion is granted.

         II. Undisputed facts [4]

         A. The Defendants

         PMHC is a nonprofit that provides behavioral health services, particularly treatment to children on the autism spectrum. (Def. Statement of Undisputed Facts (“DSUF”), ECF 84-2 ¶¶ 1, 3.) During the relevant time, PMHC was reimbursed for health care services to Medicaid-eligible children, authorized by Community Behavioral Health (“CBH”) and Magellan Health. (Pl. Summary of Additional Facts “PSAF” ¶¶ 74-77, PSAF Resp., ECF 105, ¶¶ 74-77.)

         Defendant Kerey Parnes (previously Ruggiero) is the CEO of PMHC and President of Staffmore. (DSUF ¶¶ 4, 7.) Parnes's father founded PMHC in 1953. (DSUF ¶ 2.)

         Defendant Staffmore is a company that provides independent contractor clinicians and administrative support for behavioral healthcare providers. (DSUF ¶ 8.) Parnes created Staffmore around 2005. (PSAF ¶¶ 94, 95.) Staffmore provided PMHC with staffing for services such as clinician, human resources, payroll and accounts payable, administrative compliance, and electronic training functions. (Resp. Exs. 50-56.)

         Defendant Donna Moran is currently retired, but previously worked at PMHC in “various capacities” and was the Executive Director at Defendant Staffmore. (DSUF ¶ 9.)

         Defendants Wolf and Ruggiero serve as holding companies for real estate, and Parnes holds a controlling interest in both companies. (DSUF ¶¶ 12-13.)

         Defendant Healthworks is “a defunct Pennsylvania LLC which was in the business of providing information technology and marketing services to health care businesses.” (DSUF ¶ 14.) Parnes was the founder and majority owner in Healthworks, owning 80-90% of the shares, and her son owned the rest. (Parnes Dep., Resp. Ex. 30, 76:3-20; PSAF ¶ 71.) Healthworks was under contract with PMHC to provide IT services, including, among other things “backup support.” (Resp. Ex. 70.) Healthworks also provided PMHC with marketing and social media services. (Ex. 72.)

         B. Plaintiff's employment history

         Plaintiff has an undergraduate degree in Psychology from Rochester University and a Master of Social Services from Bryn Mawr College. (DSUF ¶ 16.) After obtaining her master's degree, Plaintiff worked for about six months as a clinician at CBH, one of PMHC's largest funders, where she ran the children's division. (DSUF ¶ 18.) In 1999, Plaintiff left CBH to become an Agency Director at PMHC. (DSUF ¶ 19.) In that position, Plaintiff “interfaced with PMHC's funders, principally CBH and Magellan.” (DSUF ¶ 21.) Plaintiff remained at PMHC for five years.

         During her five years at PMHC, Plaintiff worked with Parnes to create the now defunct staffing agency Delaware Valley Children's Health Management (“DVCHM”). (DSUF ¶¶ 23-24, 26.) Plaintiff owned twenty percent of DVCHM, and Parnes owned eighty percent. (DSUF ¶¶ 24, 26.) Plaintiff left PMHC around 2004 or 2005 because she was “uncomfortable with the direction of the organization” because she “felt like there were monies being taken off . . . and used for personal purposes. . . . Kerey was building a home and I felt like some of the money, the Medicaid money was going to the building of her home.” (DSUF ¶ 26; Gratz Dep., Mot. Ex. 3 at 30:23-31:12.) Plaintiff also testified that she did not have access to the checks and bills at PMHC at that time and did not report her concerns to anyone. (Id. at 34:16-17, 35:14-18.)

         After leaving PMHC, Gratz worked in a compliance function at other health care agencies, where she was “responsible for compliance with the various regulations that governed the provision of behavioral health services to disabled recipients.” (Pl. Resp. to DSOF ¶¶ 29-31.)

         Before returning to PMHC in 2015, Plaintiff was the Managing Director of Behavioral Health Services at the Public Health Management Corporation (“PHM”), where she was making approximately $125, 000 per year. (DSUF ¶¶ 32, 33.)

         C. Plaintiff's work at PMHC

         Plaintiff returned to PMHC as the COO in 2015. (DSUF ¶ 34.) During the interview process, Plaintiff did not raise concerns she alleges to have had “about her suspicion that Parnes . . . had used PMHC funds to build her house some ten years earlier.” (DSUF ¶ 35; Pl. Resp. to DSUF ¶ 35.) Rather, Plaintiff “discussed the expectations for her role at PMHC and what she would bring to the organization as COO.” (DSUF ¶ 36.)

         Once she was working as COO, Plaintiff “reviewed various reports, ” including “patient census information, authorization units utilized, and the amount of service a particular staff person provided.” (DSUF ¶ 38.) On a weekly basis, Plaintiff reviewed “billing going out and cash coming in from CBH, ” and she met with CBH's billing specialist weekly. (DSUF ¶ 39.) Plaintiff and Parnes disagreed about the direction of future projects, including a potential endeavor in Florida. (See, e.g., PSAF ¶ 180.)

         Plaintiff was terminated from PMHC on February 2, 2016. (PSAF ¶ 229.) During the termination meeting, Plaintiff refused to sign a release in exchange for two months of pay. (Gratz Aff., Resp. Ex. 39, ¶ 86; PSAF at ¶ 230.)

         III. Procedural history

         Plaintiff filed her complaint on July 13, 2016. (ECF 1.) All defendants filed motions to dismiss in early September 2016. (ECF 10 & 11.) On May 19, 2017, Judge Padova, to whom this case was originally assigned, denied the motions. (ECF 20.)[5] Defendants answered the complaint, and discovery ensued. On July 30, 2018, the case was reassigned to this Court. (ECF 56.)

         On January 4, 2019, all defendants moved for summary judgment (Mot., ECF 84, PMHC Mot., ECF 81.) Plaintiff filed an omnibus response on February 6, 2018. (ECF 88.) On March 7, 2019, Defendant PMHC was dismissed from the action with prejudice when it reached a settlement agreement with Plaintiff. (ECF 93.)

         The Court then ordered Plaintiff to revise their response to comply with the Court's standing procedural rules. (ECF 95.) Plaintiff did so, but responded to the PMHC motion, rather than the moving Defendants' motion, so the Court ordered again that Plaintiff correct her response. (ECF 97.) The Court ordered that Plaintiff's responsive “Summary of Facts” would be stricken as non-compliant with the Court's rules and that Plaintiff should refile a brief responding to the correct motion. (ECF 98.) The Court also required Plaintiff to file a revised RICO Case Statement. (Id.)

         Plaintiff filed a revised response on May 27, 2019 (Resp., ECF 99), and filed her RICO Case Statement on June 3, 2019 (RICO Case Stmt., ECF 103).[6] Defendants replied to the Response on June 10, 2019. (Reply, ECF 104-105.)

         The Court held oral argument on the motion on June 25, 2019.[7] The parties were directed to file supplemental responses to the questions raised at oral argument, and both did so. (Pl. Suppl. Br., ECF 111; Def. Suppl. Br. ECF 114.) As directed by the Court, Defendants also filed a response to Plaintiff's affidavit (Def. Resp. to Aff., ECF 112), and Plaintiff replied. (Pl. Reply to Def. Resp. to Aff., ECF 113.)

         IV. Legal standard

         A district court should grant a motion for summary judgment if the movant can show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute is “genuine” if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is “material” if it “might affect the outcome of the suit under the governing law.” Id. ...

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