NC Captive Feud: Sherbrooke Says Managers Took Funds, Stole Risk-Gauging Software

North Carolina regulators last month announced that the state is now the third-largest domicile for captive insurance companies with more than 311 captive firms in the state, thanks in part to favorable premium tax rates, fees and capital requirements.

But all is not well with one of those captives, Sherbrooke Corporate Ltd., a company that provides liability insurance coverage to affiliated nursing homes and other enterprises around the country. Sherbrooke is now embroiled in a nasty legal dispute in federal court, claiming that its former managers misappropriated funds, violated employment contracts, engaged in self-dealing and stole mission-critical, proprietary software that had been used to gauge risk.

“Through their total control over Sherbrooke, Director and Officer Defendants used their positions and rights to conspire to weaken, undermine, and take advantage of Sherbrooke to enrich themselves at plaintiffs’ expense,” reads the complaint in the in lawsuit filed by Samuel Goldner, majority shareholder of Sherbrooke, based in Raleigh.

The former managers, Gabriel Mayer, Beau Walker and Joe Matthew Queen, have denied the allegations and argue that Sherbrooke itself breached an employment agreement and failed to provide health care benefits to the officers. The three have filed counterclaims, arguing that Sherbrooke violated contracts.

Samuel Goldner’s Goldner Capital Management is a significant player in senior housing and nursing facility ownership in the U.S. Sherbrooke was founded in 2018 as a captive insurance program for many of those facilities. Goldner Capital has been in the news in recent months, after local news outlets and regulators raised questions about its nursing homes in Missouri and Tennessee.

In the latest development in the Sherbrooke lawsuit, U.S. Magistrate Judge Robert Jones last week denied a motion by the defendants to stop discovery while the court considers a request that the whole lawsuit be dismissed.

At the heart of the dispute are allegations that the three managers quietly formed their own captive management company, known as Helios Risk Solutions, then named it as the management firm for Sherbrooke. It was self-dealing, the lawsuit contends: Helios was paid more than five times the standard market rate for captive manager services in the state.

North Carolina Department of Insurance records show Helios is an approved captive manager, owned by Queen, based in Rome, Georgia. Queen had previously worked with Hiscox USA, a specialty insurer, according to news reports.

Sherbrooke’s complaint also claims that the three men illegally copied and utilized the software that Sherbrooke had spent more than $1 million to develop.

“The proprietary software enabled Sherbrooke to, among other things, incorporate and utilize medical records to project and predict risk values in pricing individual covered incidents more effectively,” the complaint notes.

Specifically, the software was used to accurately price insurance contracts for existing and potential customers, in order to “provide competitive and profitable insurance policies for Sherbrooke and its customers.”

The suit asks for a declaration from the federal court that Mayer and Queen were properly removed as officers of Sherbrooke, and that they owe compensatory and punitive damages to Sherbrooke and Goldner.

Topics North Carolina