* We’ll let Doug Ibendahl set up this post since he is responsible for breaking the story before the spring primary…
The long-awaited trial involving Bruce Rauner’s private equity firm’s alleged “bust-out” of its nursing home company is set to begin today, September 22, at 8:15 a.m. Eastern before Judge Michael G. Williamson in U.S. Bankruptcy Court in Tampa, Florida.
This is the case Judge Williamson previously described as having “all the makings of a legal thriller.”
The case is brought on behalf of the estates of six elderly victims who suffered abuse and inadequate care while residents in nursing homes controlled by Trans Healthcare, Inc. (“THI”). GTCR acquired THI in 1998 and made the company its vehicle for rapidly buying-up over two-hundred nursing homes around the country.
Rauner was chairman of the Chicago-based GTCR when all of the alleged wrongdoing occurred. A series of GTCR entities are named defendants: GTCR Golder Rauner, LLC; GTCR Fund VI, LP; GTCR Partners VI, LP; GTCR VI Executive Fund, LP; GTCR Associates, VI; and THI Holdings, LLC.
Edgar D. Jannotta, Jr., formerly one of Rauner’s fellow GTCR principals, and now one of the largest contributors to Rauner’s gubernatorial campaign, is also named as a defendant in his individual capacity.
* The Tribune also had a front-page story today about the case. I couldn’t help but notice that some of the article was deja vu all all over again…
In an interview early this year, Rauner told the Tribune he had little involvement with the nursing home firm, Trans Healthcare Inc., except for a brief period after GTCR started it. […]
But a document from the nursing home chain bearing Rauner’s signature and filed in the Florida case shows he served as a director on the chain’s board at least four years later.
The guy sure has switched his stories to the Tribune a lot this year.
* And I’m sure I’ve seen this somewhere else…
But growth brought financial problems, and creditors aired suspicions that the company had misstated earnings, making a significant loss look like a modest profit, according to court documents.
Oh, yeah, now I remember where I saw that before: Lason Inc.
* But as the Tribune story points out, Rauner himself was never deposed for this or other lawsuits regarding the alleged nursing home “bust out.”
On the other hand…
Steven Berman, an attorney representing the government-appointed bankruptcy trustee in the case, contended that while Jannotta was a key player at Trans Healthcare, the investment committee of GTCR principals effectively ran the company.
“Bruce Rauner is also on the investment committee, and I don’t have any reason to believe that [former GTCR partner Edgar Jannotta] acted without the approval of Rauner and the other members of the committee,” Berman said. “They were calling the shots.”
Jannotta, who could take the stand, said in a sworn deposition in one of the wrongful death cases that GTCR made “all the decisions regarding THI at the investment committee level.”
The Rauner campaign said that the investment committee wasn’t involved in day to day details of operating or winding down the business, however.
* From today’s Bloomberg story…
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 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.
* But as a Rauner backgrounder points out, the plaintiffs offered to settle for much less…
Wilkes & McHugh Offered To Settle Five Out Of Their Six Lawsuits Against THI And THMI For $200,000 In 2008. “In an October 17, 2008 e-mail, Anderson informed THI’s CFO, Matt Box, that the ‘settlement amounts’ of the five Estates’ lawsuits filed to date were $215,000 total. In the fall of 2008, Wilkes & McHugh made a settlement demand of $200,000 to settle the six Estates’ lawsuits; THI countered at $80,000.” (“GTCR STATEMENT OF UNDISPUTED FACTS IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT, In re: FUNDAMENTAL LONG TERM CARE, INC, United States Bankruptcy Court Middle District Of Florida, Case No. 8:11-bk-22258-MGW, 7/22/14, p. 37-38)
* More from that Rauner backgrounder…
GTCR Strongly Denies That The Firm “Engage[d] In A Scheme To Shed Or Avoid Liabilities” Associated With Trans Healthcare Inc. (THI) “Plaintiffs wrongly accuse these defendants of misconduct in an attempt to find a deep pocket to satisfy “empty chair” verdicts against THI and Trans Health Management, Inc. (“THMI”) in other lawsuits. The evidence will show these defendants acted properly at all times. They did not engage in a scheme to shed or avoid liabilities, and Mr. Jannotta did not approve any transfer of THMI assets.” (OPENING STATEMENT OF DEFENDANTS GTCR GOLDER RAUNER, LLC et. al, In re: FUNDAMENTAL LONG TERM CARE, INC, United States Bankruptcy Court Middle District Of Florida, Case No. 8:11-bk-22258-MGW, 9/18/14, p. 1)
* And more, in case you’re interested…
GTCR Maintains That No Liabilities Were Transferred From THI To THMI In The 2006 Sale. “Plaintiffs have argued the restructuring was an elaborate plot to burden THMI with THI’s liabilities. That’s not what the evidence will show. No liabilities were transferred from THI or any other entity to THMI. As in any other stock sale, the buyer acquired THI’s equity interest, and, in that THI board-approved sale, THMI’s assets and liabilities did not change.” (OPENING STATEMENT OF DEFENDANTS GTCR GOLDER RAUNER, LLC et. al, In re: FUNDAMENTAL LONG TERM CARE, INC, United States Bankruptcy Court Middle District Of Florida, Case No. 8:11-bk-22258-MGW, 9/18/14, p. 4)
In Fact, GTCR Argues, The Sale Of THMI Decreased THMI’s Liabilities Because THMI Was Provided With “Broad Indemnification Rights With Respect To Nearly All Lawsuits Pending Against THMI.” “In fact, to the extent the restructuring affected THMI’s liabilities, it reduced them: (i) THI paid $7.5 million to settle litigation in which THMI was also a defendant; (ii) THI, Holdings, and THIB provided THMI broad indemnification rights with respect to nearly all lawsuits pending against THMI; and (iii) THMI was released as a guarantor of $67 million in secured loans.” (OPENING STATEMENT OF DEFENDANTS GTCR GOLDER RAUNER, LLC et. al, In re: FUNDAMENTAL LONG TERM CARE, INC, United States Bankruptcy Court Middle District Of Florida, Case No. 8:11-bk-22258-MGW, 9/18/14, p. 4-5)
The Plaintiff’s Own Expert Report Acknowledges That THI Assumed Responsibility For THMI’s Legal Liabilities Following THMI’s Sale. “Post the FLTCH and FLTCI Transactions, the BIP sought indemnity from THIH and THI for claims under Section 6C(iii). For example, THI of Baltimore Management, LLC notified THIH on September 25, 2006 that it received a Summons and Complaint naming THMI as a defendant in a case brought forward by Opal Lee Sasser, et al. The letter goes on to state, ‘THM(I), a Buyer Indemnified Party, hereby demands indemnification for any liabilities which may arise as a result of this matter and requests that you retain counsel to defend its interests and arrange for its dismissal from the above-referenced action as soon as possible.’ THIH and THI complied with the indemnification requests by funding such indemnified litigation costs and claims for approximately ten cases.” (“Expert Report Of James S. Feltman, CPA,” In re: FUNDAMENTAL LONG TERM CARE, INC., United States Bankruptcy Court Middle District Of Florida, Case No. 8:11-bk-22258-MGW, 5/29/14, p. 13-14)
GTCR Invested A Fresh $20 Million Into THI As Part Of The 2006 Restructuring. “Recapitalization of THI. The GTCR Funds contributed more than $20 million of new capital, in addition to the $8.78 million that Holdings (83%-owned by the GTCR Funds) contributed to THI. The GTCR Funds also forgave more than $13 million in principal and interest—the entire balance on loans that THI had previously received from the GTCR Funds.” (OPENING STATEMENT OF DEFENDANTS GTCR GOLDER RAUNER, LLC et. al, In re: FUNDAMENTAL LONG TERM CARE, INC, United States Bankruptcy Court Middle District Of Florida, Case No. 8:11-bk-22258-MGW, 9/18/14, p. 3-4)