APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 75-0539)
Before Gibbons, Van Dusen and Weis, Circuit Judges.
Defendant Dr. Anthony J. Pisani appeals from a judgment for $151,413. which the district court entered against him after a trial without a jury. The judgment held Pisani personally liable for Medicare overpayments which the former Department of Health, Education and Welfare ("HEW") made to his solely-owned corporation, Eaton Park Associates, Inc. ("corporation"). This court has jurisdiction under 28 U.S.C. § 1291 (1976). We affirm.
From January 18, 1967, to February 28, 1970, the corporation, doing business as Eaton Park Nursing Home ("Provider"), participated in the Medicare program. During this time, Prudential Insurance Company was the fiscal intermediary between the Provider and HEW, and it supervised the nursing home's financial participation in the Medicare program and advanced interim reimbursements to the home for Medicare services.
Under the Medicare program, an intermediary makes interim payments to providers of services based on their estimated monthly patient costs. To verify these estimates, the providers must submit to the intermediary an annual cost report, verifying their actual costs in caring for Medicare patients. These reports are subject to audit by the intermediary or a subcontracted accounting firm. HEW uses these annual audits to determine if a provider has been overpaid or underpaid by its interim payments.
The Provider (Eaton Park) submitted annual cost reports for 1967, 1968, and 1969. Prudential's accounting firm, Peat, Marwick, Mitchell & Co., could not audit the annual cost reports because Pisani could or would not provide the records it needed to conduct an audit. HEW then surveyed comparable nursing home providers and used the average per diem patient cost of Golden Crest Nursing Home to calculate the Provider's actual costs. The Department believed that Golden Crest was comparable to the Provider. As a result of the survey, HEW determined that $151,413. of the $546,361.25 paid to the Provider for Medicare services was an overpayment. The corporation never repaid the $151,413. since it had no assets. On March 27, 1972, "the corporate entity became void" for failure to pay state taxes. Finding 19, App. 29; Supp.App. 253-54.
Pisani was president, registered agent, and sole stockholder of the corporation during the Provider's participation in the Medicare program. He used personal funds, often obtained through personal bank loans, to finance the corporation. He also loaned money to the corporation. It always operated at a loss, was undercapitalized, and never paid dividends. Pisani kept no corporate minute books and observed no corporate formalities. He testified that all the corporate records were in a briefcase which was stolen from the trunk of his car, but the district court did not believe this testimony.*fn1
The June 30, 1967, financial statement for the corporation showed that Pisani had loaned $184,922.67 to the corporation, but its annual cost report for the fiscal year ended June 30, 1969, showed that this debt was reduced from $169,610.60 to zero during that year. Pisani testified that he received $25,000. of a $200,000. personal bank loan, which was secured by all the corporation's stock, and that he received the $25,000. as partial repayment of his loans to the corporation. Supp.App. 149-151. His accountant, Mr. Petrics, testified that $100,000. of the loan was used to repay the corporation's debt to Pisani. Although Pisani repeatedly denied that the loans were repaid, he later admitted that he signed documents showing that the corporation repaid $116,000. to him. Supp.App. 156-58. He knew during the time the corporation repaid his loans that it was on the verge of financial collapse. The nursing home was sold at a foreclosure sale in January 1970 after it defaulted on its mortgage payments.
The district court held Pisani liable for the $151,413. of overpayments as the alter ego of the corporation. It used the cost figures which HEW obtained from Golden Crest, instead of the average cost data for all New Jersey nursing homes. HEW had determined that Golden Crest was a comparable facility. Finally, the court rejected defendant's claim that laches barred the Government's suit.*fn2
A. Controlling Law: Federal or State
This court must first determine whether federal or New Jersey law controls the issue of Pisani's individual liability for overpayments to the corporation. We hold that federal law applies under Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S. Ct. 573, 87 L. Ed. 838 (1943). "Federal law governs questions involving the rights of the United States arising under nationwide federal programs." United States v. ...