“Carefully orchestrated sham transaction”
Bloomberg reported that the bankruptcy judge in the Fundamental Long Term Care Holdings, Inc. bankruptcy stated that 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 Barry Sacks. Murray Forman and Leonard Grunstein (who pled guilty to perjury recently) were the owners of a multistate chain of nursing homes who 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 due to short-staffing caused by corporate decisions on budget and expenditures. The transfer “bears all the hallmarks of fraud,” Judge Williamson said at the hearing. 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.
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.
Williamson today ordered FLTCH’s owners to mediation with the plaintiffs. Lawyers for both sides said the mediation would probably happen next month. Williamson 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. The plaintiffs claimed that attempting to separate liabilities from assets is a common practice in the U.S. nursing home industry, in an attempt to insulate owners from possible judgments.
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. 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. 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. See additional article at Chicago Tribune.
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).