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. This was the stated opinion of a federal judge and an opinion the lawyers at Beasley Allen who handle nursing home cases agree with. U.S. Bankruptcy Judge Michael Williamson in Tampa, Fla., said last month that the owners of Fundamental Long Term Care Holdings LLC engaged in a “carefully orchestrated sham transaction” by selling a Trans Healthcare Inc. unit in 2006 to a retired graphic artist who didn’t even know he bought the company.
Fundamental Long Term Care Inc. (FLTCH) a Sparks, Md.-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,” Judge Williamson said. The other unit, Trans Health Management Inc. (THMI) was “stripped of all its assets,” he said. Judge Williamson said in his tentative ruling that FLTCH and its affiliates have “successor liability” for judgments against THMI. Judge Williamson ordered FLTCH’s owners to mediation with the Plaintiffs. He said his findings are tentative and “can’t be used to establish liability.” He said he wouldn’t issue final findings until after the mediation. The individual lawsuits remain stayed until Judge Williamson reaches a final decision or they are resolved in mediation.
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. Also sued were Trans Healthcare’s lenders, General Electric Capital Corp. and Ventas Inc., and its former principal owner, private-equity firm GTCR Golder Rauner LLC. It was alleged that these defendants aided an “effort to thwart potential claims.”
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, Judge Williamson said, quoting from an e-mail introduced in the trial. 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, Judge Williamson said. Jannotta didn’t know of plans to sell part of the company to Saacks, according to the judge. GTCR lost more than $60 million on its investment in Trans Healthcare, he said, adding “It was a financial disaster” for GTCR.
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