Antitrust Law Daily Wrap Up, RICO—D. Idaho: RICO claims against hospital and its executives over alleged takeover attempt of health screening company fail, (Oct 6, 2014)

By Linda O’Brien, J.D., LL.M.

In an action brought by an owner of a health screening services company against a hospital, two executives, and its attorney for allegedly committing extortion to assume her interests in the company, the owner failed to plead facts establishing a pattern of racketeering activity to pursue RICO claims, the federal district court in Boise, Idaho, has held. The defendants’ motion to dismiss was granted (Northwest Osteoscreening, Inc. v. Mountain View Hospital, LLC, October 2, 2014, Winmill, B.).

Danielle Bennion owned and operated Northwest Osteoscreening, which offered health screening services to businesses and governmental entities in Idaho. Northwest Osteo billed patients or their employers directly instead of billing its patients’ insurance providers for services performed. In January 2011, Bennion joined Mountain View Hospital (MVH) as its director of governmental affairs and proposed a collaboration between Northwest Osteo and MVH to MVH’s chief executive officer, James Adamson, vice president Josh Tolman and attorney Benjamin Wood. Under her plan, Northwest Osteo would perform on-site preventative health services and MVH, as a credentialed provider, would bill the patients’ insurance providers for the services. The two companies would split the insurance revenue. In May 2011, IHSV and MVH entered into an exclusive contract in accordance with the proposal. A new corporation, Idaho Health Screenings and Vaccinations, LLC (IHSV), was formed to distribute the revenue and Bennion and Woods were named as managers.

IHSV prospered—growing a large client based and generating a significant stream of revenue. In August 2011, Adamson, Tolman, and Wood sought to remove Bennion as manager of IHSV and coerced her into resigning. After Bennion refused to sell Northwest Osteo’s ownership interest in IHSV, in February 2012, Wood created another company using IHSV trade secrets to replace IHSV as MVH’s partner in offering health screenings and vaccinations in Idaho. Bennion and Northwest Osteo filed suit against MVH, Adamson, Wood, and Tolman, alleging that the defendants committed extortion and wire fraud in order to assume her interests in IHSV, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). The defendants moved for dismissal of the plaintiffs’ RICO claims for failure to state a claim.

The plaintiffs failed to plead a pattern of racketeering activity. The plaintiffs alleged that the tactics Adamson employed to force Bennion from her management position at IHSV constituted extortion. They also alleged the defendants committed wire fraud by making multiple fraudulent representations to drive out Bennion as part owner of IHSV and seize control of the substantial profits IHSV was generating.

According to the court, the plaintiffs failed to establish that the defendants’ conduct persisted over a substantial period. Properly read, the complaint showed the relevant timeframe to be August 2011 to February 2012, and seven months was generally considered too short a period to establish close-ended continuity. In rejecting the plaintiffs’ argument that the defendants’ use of IHSV trade secrets created an ongoing economic injury, the court noted that, although the harm may continue, the theft or fraud ceased once the trade secret was obtained. To adopt the plaintiffs’ theory—every misappropriation of trade secrets could result in a RICO claim—would expand the statute beyond its intended reach, the court concluded.

The case is No. 4:13-cv-00414-BLW.

Attorneys: Christopher P. Graham (Jones Gledhill Fuhrman Gourley, PA), and Alexander P. McLaughlin (Givens Pursley LLP) for Northwest Osteoscreening, Inc., Idaho Health Screenings and Vaccinations, LLC, Preventative Health, LLC, Siasconset, LLC, and Wellness Screenings, LLC. Bradley J. Williams (Moffatt Thomas Barrett Rock & Fields) for Mountain View Hospital, LLC.

Companies: Northwest Osteoscreening, Inc.; Idaho Health Screenings and Vaccinations, LLC; Preventative Health, LLC; Mountain View Hospital, LLC; Siasconset, LLC; Wellness Screenings, LLC

Cases: RICO IdahoNews