Nursing Home Liabilities Transfer Could Be Fraud: Judge

The owners of a multistate chain of nursing homes may have committed fraud by transferring liabilities to a shell company that later lost more than $2 billion in jury verdicts to families who claimed relatives died of neglect, a federal judge said in a tentative ruling.

Fundamental Long Term Care Holdings LLC’s owners engaged in a “carefully orchestrated sham transaction” by selling a Trans Healthcare Inc. unit in 2006 to a retired graphic artist who didn’t know he bought the company, U.S. Bankruptcy Judge Michael Williamson in Tampa, Florida, said at a hearing Tuesday.

Fundamental, or FLTCH, a Sparks, Maryland-based company, kept the unencumbered assets of Trans Healthcare, while the other unit was saddled with the liabilities, including judgments in Florida that have never been paid over the deaths of four residents, according to a complaint by the residents’ families and the bankruptcy trustee for the company left holding the debts.

The transfer “bears all the hallmarks of fraud,” Williamson said today. The other unit, Trans Health Management Inc., or THMI, was “stripped of all its assets,” he said. FLTCH and its affiliates have “successor liability” for judgments against THMI, he said in the tentative ruling.

Williamson ordered FLTCH’s owners to mediation with the plaintiffs. Lawyers for both sides said the mediation would probably happen next month.

Findings Tentative

Today’s findings are tentative and “can’t be used to establish liability,” Williamson said. He said he wouldn’t issue final findings until after mediation. The individual lawsuits remain stalled until Williamson reaches a final decision or they’re resolved in mediation, he said.

“This means that the FLTCH group is going to be held responsible ultimately for all the liabilities of THMI,” Steve Berman, a plaintiffs’ lawyer, said after the hearing today.

The plaintiffs claimed that separating liabilities from assets is a common practice in the U.S. nursing home industry, used to insulate owners from possible judgments. They also sued Trans Healthcare’s lenders, General Electric Capital Corp. and Ventas Inc., and its former principal owner, private-equity firm GTCR Golder Rauner LLC, alleging these defendants aided an effort to thwart potential claims.

GTCR’s Duty

Williamson said he found no evidence supporting the allegation that GTCR breached its fiduciary duty in the 2006 sale. “If I was to rule today, I would rule in favor of GTCR,” he said. He had earlier dismissed claims against the lenders.

Nathan Berman, attorney for defendants FLTCH, Murray Forman and Leonard Grunstein, and Gregory McCoskey, lawyer for FLTCH affiliates Fundamental Administrative Services and THI of Baltimore, didn’t immediately return calls or e-mails seeking comment.

In the 2006 sale, FLTCH acquired all the stock of two Trans Healthcare entities, THI of Baltimore and THI of Nevada, keeping assets such as real estate and more than 100 nursing homes nationwide, according to the plaintiffs.

In a separate, linked transaction, THI sold all of its stock in THMI to Fundamental Long Term Care Inc., whose sole owner was retired graphic artist Barry Saacks, who at the time of the sale was living in a basement, Williamson said, quoting from an e-mail introduced in the trial.

Buying Computers

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.

GTCR principal Ned Jannotta conducted the sale in good faith, trying to save the chain from bankruptcy, Williamson said today. Jannotta didn’t know of plans to sell part of the company to Saacks, the judge said. GTCR lost more than $60 million on its investment in Trans Healthcare, he said. “It was a financial disaster” for GTCR, he said.

The plaintiffs will appeal the decision on GTCR, if finalized, Berman, their lawyer, said. GTCR wasn’t ordered to mediation.

The case is In re Fundamental Long Term Care Inc., 11- bk-22258, 13-ap-00893, U.S. Bankruptcy Court, Middle District of Florida (Tampa).

Topics Florida USA Fraud Legislation