Stoel Rives Secures $6.5 Million Verdict for Spine Institute of Idaho in Fraud and Contract Dispute

BOISE, Idaho – Stoel Rives, an AmLaw 200 law firm, secured a $6.5 million jury verdict for its client Spine Institute of Idaho in a fraud and contract dispute against Ataraxis, Inc., its CEO Stephen Cilley, and his other entities, following a two-week jury trial in Ada County before Judge Jonathan Medema. 

“This verdict sends a clear message that fraud will not be tolerated. We are grateful the jury saw through the misrepresentations and deliberate efforts to shift assets and avoid responsibility," said Nicole Hancock. “This case was about trust; trust that a professional employer organization would properly and transparently handle its client’s tax credits. The verdict reflects the seriousness of that breach of trust and the harm it caused.”

On February 20, the jury found Ataraxis, Inc. liable for both breach of contract and fraud, and found Stephen Cilley guilty of fraud, awarding actual and punitive damages to the Spine Institute. The jury also found Stephen Cilley’s other entities—Ataraxis, Idaho, Ataraxis, Nevada, Province Management Group, and ATX PEO—jointly and severally liable based on theories of successor liability and fraudulent transfer. 

Ataraxis, Inc. is a professional employer organization (PEO) that provided payroll and human resources services to the Spine Institute since 2012. When COVID-19 hit, the Spine Institute was entitled to an Employee Retention Tax Credit (ERTC) of approximately $406,000, that had to be sought by the PEO who pays the payroll taxes. Earlier in the case, the Court found that Ataraxis, Inc. never filed Spine Institute’s ERTC claim, despite repeatedly assuring Spine Institute for nearly two years that it had been filed, processed, and was pending before the IRS. Meanwhile, Ataraxis, Inc. had accrued millions of dollars in tax liens, which the IRS would apply any ERTC credits against, even those belonging to Ataraxis, Inc.’s clients. CEO Stephen Cilley repeatedly lied to Spine Institute, claiming no ERTC credits had been processed even though his lawyers, accountants, and employees told him some had already been applied to Ataraxis, Inc.’s tax liens. These misrepresentations concealed that Ataraxis, Inc.’s tax liabilities were taking its clients’ tax refunds and they had no intention of filing any other ERTCs to expose Ataraxis, Inc., to more liabilities.

Once the CEO realized IRS refunds were being absorbed into Ataraxis, Inc.’s liabilities, he transferred all of the employees to Province Management Group and moved all of the revenue generating PEO contracts into his other entities—Ataraxis, Idaho, Ataraxis, Nevada, and ATX PEO—in order to avoid Ataraxis, Inc.’s liability.

After three hours of deliberation, the jury came back and awarded $6 million in punitive damages and all of the actual damages incurred by the Spine Institute. The team representing the Spine Institute of Idaho included Stoel Rives attorneys Nicole Hancock as lead trial counsel, Cory Carone as second chair, Alaina Harrington, and paralegal Karissa Armbrust.