United States v. Evergreen Recovery Inc.

Background

The United States filed a complaint seeking a permanent injunction and other equitable relief under 18 U.S.C. § 1345. It also sought an emergency temporary restraining order. The court issued that temporary order on July 25, 2024, and extended it for one day by agreement of the parties on August 8, 2024. The United States then moved for a preliminary injunction, and the court held a hearing on August 9, 2024.

The parties agreed that the court could decide the necessary factual issues from the documentary record, including an affidavit from Special Agent Kurt Beulke. The defendants offered no evidence or argument to counter the facts in the government’s filings, but they did not concede that fraud had been committed.

Findings supporting preliminary relief

The court found that it had jurisdiction over the case and the parties and that venue was proper. Based on the record, the court concluded that it was more likely than not that the defendants had conspired to commit federal offenses by:

- billing Medicaid for substance-abuse treatment services that were not provided, in violation of 18 U.S.C. § 1347; and - engaging in an illegal and fraudulent kickback scheme, in violation of 42 U.S.C. § 1320a-7b.

The court also found substantial reason to believe that the defendants’ assets would cause immediate and irreparable harm if dissipated. The court stated that remaining assets might otherwise be unavailable for restitution to victims, payment to creditors—including former employees who had not been paid for weeks or months—or forfeiture and civil or criminal penalties. The court found that at least $28 million was more likely than not traceable to the alleged fraudulent conspiracy.

The court concluded that the United States was likely to succeed on its complaint for a permanent injunction and that the preliminary injunction was in the public interest. It found that the injunction, particularly the receiver’s appointment, was the only way to address the alleged fraud and the resulting collapse of the Evergreen entities. The court required no security from the United States for the preliminary injunction.

Relief ordered

The court entered a preliminary injunction covering Evergreen Recovery Inc., Evergreen Mental Health Services Inc., Ethos Recovery Clinic Inc., Second Chances Recovery Housing Inc., Second Chances Sober Living, Inc., David Backus, Shawn Grygo, and Shantel Magadanz, as well as specified affiliates, agents, financial institutions, employees, and persons acting with them.

The injunction:

- prohibited withdrawing or transferring up to $28 million held for the Evergreen entities or individual defendants, unless authorized by the court or covered by an exception; - prohibited transferring, selling, assigning, dissipating, concealing, encumbering, impairing, or otherwise disposing of covered assets up to $28 million; - restricted access to safe-deposit boxes and storage facilities without prior notice to the United States and an opportunity for inspection; - required financial institutions and other custodians to preserve covered assets, provide account and asset information to the receiver within ten business days of notice, provide access to relevant records, and cooperate with the receiver; and - prohibited destroying, altering, or failing to maintain business, corporate, banking, financial, and accounting records material to the case.

The order exempted two Wells Fargo accounts held by Shantel Magadanz from the asset freeze, subject to a limit of $5,500 per month for the reasonable living expenses of her immediate family. It also exempted a Wells Fargo account held jointly by Shawn Grygo and her mother, with the understanding that Grygo would not continue to have access to the account or its contents.

The court deemed all assets of the Evergreen entities to be part of a receivership estate subject to the receiver’s exclusive administration.

Receiver

The court appointed Ranelle Leier of Fox Rothschild LLP as receiver for the Evergreen entities, with the full powers of an equity receiver. The receiver acts as an agent of the court, reports directly to the court, and has judicial immunity under the order.

The receiver was authorized to take exclusive control of the entities’ operations and assets; remove directors, officers, employees, contractors, or agents from management when deemed necessary; secure business premises; inventory and preserve assets; manage the receivership estate; collect income and make authorized payments; hire professionals; handle litigation with court authorization; coordinate an orderly dissolution with government agencies; provide requested patient, sober-home, and employee records; and maintain financial records and submit reports.

The receiver was also authorized to seek bankruptcy relief for an Evergreen entity, act as management or debtor in possession in a bankruptcy case, and attempt to locate additional assets belonging to the Evergreen entities or individual defendants. The order authorized payment of the receiver’s reasonable compensation and expenses from available assets, subject to periodic requests filed with the court. Instead of a monetary bond, the receiver was required to file a letter promising to comply with the order and perform the receiver’s duties.

Disposition and continuing authority

The court entered the preliminary injunction and appointed the receiver. It retained exclusive jurisdiction over the matter and stayed civil discovery while the preliminary injunction remained in effect. The order’s findings concern preliminary relief and the defendants’ likelihood of liability; the opinion does not state that the court entered a final judgment on the alleged fraud.