A clinic says a Boise payroll firm strung it along for years. Jury awards $6M
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- Ada County jury found payroll-services firm Ataraxis defrauded Spine Institute of Idaho.
- Jurors awarded the medical group over $6.4 million in economic and punitive damages.
- Ataraxis applied client tax refunds to its liabilities and moved assets to other entities.
A jury in Ada County slapped a Boise payroll-services firm and its CEO with more than $6.4 million in damages after finding it defrauded a Meridian-based medical group.
The jury found that Ataraxis, a company that provides payroll, human resources and related tax services to other employers, and CEO Stephen Cilley breached their contract with Spine Institute of Idaho and defrauded it in a dispute tied to a pandemic-related tax credit.
Spine Institute of Idaho said it hired Ataraxis in 2012 to handle payroll tax reporting and filings with federal and state agencies. When the government created the COVID-19-era tax credit that could give employers money back for keeping workers on staff, the clinic said it was told Ataraxis would file the required paperwork with the IRS to claim the refund.
The medical group said in the lawsuit that Ataraxis strung it along, promising the claim had been filed though it never had been, and that the refund was on the way when it wasn’t, leaving the practice short hundreds of thousands of dollars. For two years, the medical group said, it was led to believe the claim was pending before the IRS.
In a verdict filed Feb. 20 in 4th District Court, jurors awarded Spine Institute of Idaho over $454,000 in economic damages for losses suffered because the medical group relied on the false statements. The jury also imposed an additional $6 million in punitive damages, including $4 against Ataraxis and $2 million against Cilley.
Ataraxis filed a motion March 13 for a new trial, and on Friday it appealed the verdict to the Idaho Supreme Court.
“Ataraxis respectfully disagrees with the outcome,” the company said in a statement. “Because this matter is ongoing, we are limited in what we can share. However, we remain confident that a review of the record on appeal will provide appropriate context, and we look forward to the appellate process. We take our partnerships and responsibilities seriously and remain committed to operating with integrity and transparency.”
The case centers around the federal Employee Retention Tax Credit, a program created by Congress in 2020 to reward employers for not laying people off during the pandemic. The credit was claimed through employment tax filings. Eligible employers could claim up to $5,000 per employee in 2020 and up to $7,000 per employee per quarter in 2021.
But employers who use a professional employer organization, or PEO, such as Ataraxis, must file payroll taxes under the PEO’s tax identification number. The employer can’t claim the credit directly; the PEO has to submit an amended employment tax return on the client’s behalf, according to a second amended complaint, filed in December. Spine Institute of Idaho said its expected refund was $406,336.
Ataraxis repeatedly assured the medical group that it had filed the paperwork with the IRS and that the refund was being processed, the complaint said. Spine Institute of Idaho said it relied on those assurances and made financial decisions in anticipation of receiving the money, including filing an amended tax return, paying additional taxes and taking out a line of credit to help cover operating expenses while it waited.
Meanwhile, the Ataraxis covered up the fact that it was taking its clients’ tax refunds to pay its own liabilities.
Ataraxis had incurred numerous interest-accruing penalties with the IRS for late or incorrect federal tax deposits and other filings with the IRS, resulting in significant tax liens, according to the complaint. It said that once company officials realized refunds could be applied to Ataraxis’ tax liabilities, Cilley began transferring employees and clients into several other subsidiary entities, including Ataraxis Nevada, Inc., Ataraxis Idaho, Inc., Province Management Group, Inc., and ATX PEO Services Inc.
Jurors answered “yes” when asked whether they found one or more of the organizations were successor entities of Ataraxis.
The jury also found that Spine Institute of Idaho proved that Ataraxis has made a fraudulent transfer of property to those entities. The verdict form says the fair market value of the property was $2.5 million.
The complaint said Cilley intentionally hid his knowledge of a $510,059 credit from Ataraxis’s clients, including Spine Institute of Idaho, and discussed paying the sum to “the responsible client in order to remedy the situation, but ultimately decided against it” because the company didn’t have the funds to pay it outright.
The jury returned the verdict after three hours of deliberations.
This story was originally published April 11, 2026 at 4:00 AM.
