Nursing Home Neglect Trial Challenges Shell Company Transfers

By | September 23, 2014

Juanita Jackson died in July 2003, five weeks after she was removed from a Florida nursing home where her family said continual neglect led to multiple bedsores, malnutrition and a fall that injured her head.

Trying to collect a $110 million verdict against two nursing home companies has led her family on a four-year odyssey through a maze of private-equity firms and shell companies to a bankruptcy court trial that was set to begin Monday, Sept. 22.

A corporate structure designed to transfer liabilities from the nursing home operator to a shell company without assets also has kept five other families from pursuing wrongful death lawsuits or collecting judgments, said lawyers for the family of Jackson, who was 76 when she died.

Trans Healthcare Inc. and Trans Health Management Inc., which the plaintiffs claimed operated the homes, never appealed or paid the 2010 verdict — $55 million each — awarded by a state court jury in Bartow, Florida. Collection was thwarted through a complex transaction that sent Trans Healthcare’s liabilities to a shell company called Fundamental Long Term Care Inc., which had no assets, while creating a solvent nursing home chain that was protected from judgments, lawyers for Jackson’s family contend.

The defendants including private equity firm GTCR Golder Rauner LLC counter that they were never responsible for negligence at the homes and weren’t involved in a scheme to send liabilities to an insolvent company.

‘Fraudulent Transfers’

The plaintiffs, who include the trustee for Fundamental Long Term Care as well as families of former residents, want U.S. Bankruptcy Judge Michael Williamson in the nonjury trial in Tampa to unravel the transaction, find GTCR committed breach of fiduciary duty, and rule the ultimate owners of the nursing home chain engaged in fraud.

“We’re seeking an award of damages in the hundreds of millions, for fraudulent transfer,” Steve Berman, a lawyer for the trustee, said in a phone interview. They’re also seeking punitive damages.

The defendants will ask Williamson to toss out the claims. The judge has already dismissed multiple defendants, including General Electric Capital Corp. and Ventas Inc., which were lenders to the nursing home companies.

“Plaintiffs wrongfully accuse these defendants of misconduct in an attempt to find a deep pocket,” lawyers for GTCR said in a filing. The GTCR defendants “did not engage in a scheme to shed or avoid liabilities,” the lawyers said. Former GTCR Chairman Bruce Rauner, the Republican candidate for governor in Illinois, wasn’t a defendant in the case.

Lawsuit Heart

The trial is scheduled for 12 days in all, with the final day set for next month. Williamson won’t issue a decision until after the parties file post-trial briefs once testimony has ended.

At the heart of the lawsuit are two linked 2006 transactions involving Trans Healthcare Inc., THI, and its Trans Health Management Inc. unit, THMI. By early 2006, the THI companies were facing more than 150 lawsuits in at least 15 states, “most of those brought by nursing home residents for negligence, neglect and abuse,” according to the plaintiffs.

Fundamental Long Term Care Holdings LLC, based in Sparks, Maryland, acquired all the stock of two Trans Health entities, THI of Baltimore and THI of Nevada, according to a ruling in May by Williamson. In a second sale, THI sold all of its stock in THMI to Fundamental Long Term Care Inc.

While the names are similar, the assets and owners were different. Fundamental Long Term Care Holdings LLC, referred to as FLTCH in court papers, kept the unencumbered assets, including real estate and more than 100 nursing homes nationwide, while Fundamental Long Term Care Inc. was saddled with the liabilities, the plaintiffs claim.

Schron Dismissed

The owners of FLTCH included New York billionaire Rubin Schron and investment banker Murray Forman, according to court papers. Schron was dismissed from the case.

Forman said in court filings that he wasn’t aware of litigation against THMI at the time of the sale. Forman’s attorneys, Nathan Berman and Sara Alpert, didn’t return calls seeking comment on the case.

The buyer of Fundamental Long Term Care Inc. was a graphic artist, now living in a nursing home himself. The artist, Barry Saacks, said in sworn testimony for the lawsuit that he didn’t know he owned the company and didn’t put up any money for it. He said he had intended to buy THMI for its computer equipment.

Williamson questioned this part of the transaction in a May 6 ruling on evidence.

Computer Equipment

The defendants contend that Saacks incorporated Fundamental Long Term Care Inc., the current debtor, to acquire “computer equipment, which he intended to lease to Fundamental Administrative Services (a newly created entity that provided administrative services to the nursing homes acquired by FLTCH),” Williamson wrote. He later refers to the administrative services entity as FAS.

“But why would Saacks — an elderly graphic designer — acquire the stock in a company that was subject to millions of dollars in liability simply to obtain computer equipment?” Williamson said. “Why not simply enter into an asset purchase agreement? And how is it, assuming the allegations of the plaintiffs’ complaint are true, that Saacks never paid the $100,000 purchase price, never received the computer equipment, and apparently has never received any lease payments from FAS?”

Sale Agreement

These questions, “other than the one about why Saacks would enter into a stock sale agreement rather than an asset sale agreement — are based on mere allegations at this point,” Williamson added.

GTCR contends the transactions were intended to save the nursing home company from bankruptcy.

The GTCR Funds contributed $20 million in new capital, in addition to $8.78 million that the holding company contributed. GTCR forgave more than $13 million in principal and interest on loans to THI, fund lawyers said.

“There was no scheme to shift THI’s liabilities to THMI,” GTCR lawyers said in court papers. The restructuring reduced the resulting companies’ liabilities, GTCR said.

“The GTCR Funds had no interest in having companies in which they had invested millions of dollars sell off subsidiaries for less than they were worth, particularly as the GTCR Funds were simultaneously investing tens of millions of new capital into those businesses.”

Hands-On Care

The Fundamental defendants denied fraud or that THI or THMI were responsible for any neglect of nursing home residents, including Jackson. The THI companies provided support services, such as payroll and accounting, and weren’t involved in operations at the nursing homes, those defendants said a July filing.

“Service providers like THMI are often joined as defendants in professional liability and general liability cases by nursing home patients,” the Fundamental defendants said. Companies like THMI “are rarely found independently liable because they are not involved in or in any way responsible for hands-on patient care,” they said.

The case is In re. Fundamental Long Term Care Inc., 11- bk-22258, U.S. Bankruptcy Court, Middle District of Florida (Tampa).

Topics Florida Fraud

Was this article valuable?

Here are more articles you may enjoy.