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Note: Peter Rogan (Applicant) purchased Edgewater Hospital (Hospital). When Applicant refinanced Hospital's debt, Dexia Crédit Local (Issuer) issued a standby letter of credit on Applicant's behalf to assure repayment. When Hospital's scheme to "defraud the government by charging [United States] Medicare and Medicaid programs for unnecessary medical services" was discovered, the government stopped reimbursing Hospital for Medicare/Medicaid and Hospital defaulted on its debt. Issuer was subsequently required to honor its letter of credit. Issuer sued Applicant for reimbursement and was awarded US$124 million.

Issuer now alleges that Applicant's attorney (Defendant/Firm) "schemed to defraud Applicant's creditors so they would be unable to collect from him and the entities he controlled" and seeks damages under the Racketeer Influenced and Corrupt Organizations Act (RICO). Defendant/Firm moved to dismiss alleging Issuer's failure to state a valid claim under Federal Rules of Civil Procedure 12(b)(6) and 9(b) and later moved for recusal. The United States District Court, N.D. Illinois, Eastern Division, Matthew F. Kennelly, J., denied both motions.

The Judge stated:

[Issuer] has alleged that [Defendant/Firm] and [Applicant] realized that [Applicant] would face litigation as a result of the frauds perpetrated at [Hospital] and schemed to hid [Applicant's] assets from creditors while allowing him to maintain control over them. [Issuer] was one of those creditors and thus was within the reasonable contemplation of [Applicant] and [Defendant/ Firm] when they devised and carried out the scheme.

The Judge ruled that Issuer's allegations sufficiently met the pleading requirements (Rules 8(a) and 9(b)) and established a pattern of racketeering activity as required by RICO. Defendant/Firm's motion for recusal was subsequently denied due to untimeliness, and Defendant/Firm was instructed to answer Issuer's complaint. [JEB/kmw]

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