South Carolina Nursing Home Blog : South Carolina Nursing Home Lawyer & Attorney : Poliakoff & Associates Law Firm : Elderly Care, Senior Care

According to the AmLaw Daily, another disgruntled investor has filed a civil suit against Troutman Sanders, real estate partner Leonard Grunstein, and corporate partner Lawrence Levinson.   Also named as defendants are Murray Forman, an investment banker and business partner of Grunstein's, Harry Grunstein, the lawyer's brother, along with several entities created and controlled by the defendants that operate and control nursing home and health care investments.
The action comes after the three were named as defendants in a civil suit filed in state court in Manhattan by New York real estate investor Rubin Schron.

In this latest lawsuit, filed in New York State Supreme Court, plaintiff Allen Bodner accuses the defendants of legal malpractice and breach of fiduciary duty as part of a scheme to divest Bodner and a company he controlled of an interest in a lucrative health care and real estate venture.

Bodner's 54-page complaint claims Grunstein, the former head of Troutman's real estate capitalization and investment practice groups, "accounted for a substantial portion of the revenues of Troutman's New York office, much of which was attributable to the legal representation of Rubin Schron and companies associated with him."   Grunstein served as his attorney and was the "mastermind" and "legal architect" behind a series of transactions named in the complaint. Bodner further claims that Grunstein concealed his "conflicting personal financial interests" in several of those transactions, which allowed Grunstein and the other defendants to misappropriate "the real estate and health care assets" that were under the control of Bodner and his holding company.

According to a letter filed by Coles in the Schron suit, several firms have lined up advisory roles as the litigation expands. Arent Fox, Latham & Watkins, Atlanta's Arnall Golden Gregory, and New York's Brodegaard & Simone are representing several companies named as defendants in the dueling civil suits. Grunstein's brother, Harry, who now lives in Israel, has retained New York's Davidoff Malito & Hutcher, while Troutman and Levinson have turned to New York's Friedman Kaplan Seiler & Adelman.
 

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Nursing home partners in the ownership and operation of hundreds of nursing homes are fighting and suing each other for the fraud they have perpetuated for the last decade.   New York real estate investor and nursing home owner/operator Rubin Schron is suing his partners (in fraud) Troutman Sanders, Leonard Grunstein, and Murray Forman.  See Complaint here.

Schron accuses Troutman, Grunstein, and Murray Forman of breaching their fiduciary duties to benefit themselves at Schron's expense, according to this report by Bloomberg.  The Am Law Daily reported on federal charges against Schron, Grunstein, and Forman over their involvement in a $50 million kickback scheme with nursing homes and pharmaceutical providers. In February all three reached a $14 million civil settlement with federal prosecutors in Boston. 

"This case is about the systemic exploitation by self-interested attorneys and bankers of clients who entrusted them to devise and implement the terms of complex business deals that these defendants arranged and advocated for their clients," states Schron in his 97-page complaint.  Grunstein served as principal outside legal adviser to the real estate investor and his companies from the 1980s until late last year. The suit accuses Grunstein of causing "hundreds of millions in dollars of damages" to Schron.  Also named as defendants are Grunstein's brother and business associate, Harry Grunstein, and Troutman M&A and project finance partner Lawrence Levinson. 

"Grunstein facilitated his tortious conduct by his association with these firms," states Schron's complaint. "Grunstein frequently used their letterhead for his schemes, and he was assisted by the active complicity of several partners, including defendant Levinson. In reward for facilitating Grunstein's misdeeds, these law firms received tens of millions of dollars in legal fees from Schron and the Schron Entities."

The complaint further claims that Grunstein and Forman brought investment opportunities to Schron that they themselves took stakes in without contributing cash or assuming risk. Schron claims that he alone bore the risk from these transactions, with Grunstein and Forman later becoming involved in a series of deals in the nursing home business that drew the attention of federal prosecutors.

The trio have been caught up in a tangle of litigation. Grunstein and Forman filed suit against Schron in March, claiming he misappropriated funds from entities created by the two business partners and failed to keep and maintain audited financial statements.  "Underlying all of the claims in this action is Schron's pattern of betraying the trust placed in him," state Grunstein and Forman in their 38-page complaint,. Grunstein and Forman are seeking $100 million in damages from Schron, several of his relatives, and their affiliated holding companies. 
 

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The Herald Online ran an article on the guilty plea and sentencing of Melissa Rice Kelly for misusing the residents' money.  Kelly was the business office manager at Magnolia Manor in Rock Hill, S.C; this facility is one of the many facilities owned and operated by Murray Forman's Fundamental family of companies.  

Kelly only recieved probation instead of the 70 years she could have faced on the 13 felonies she admitted to in court. Kelly pleaded guilty to 12 counts of exploitation of a vulnerable adult and one count of breach of trust with fraud intent.

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Modern Healthcare has an article about real estate investment trust Omega Healthcare exercising its option to acquire 63 long-term-care facilities from affiliates of CapitalSource, a Chevy Chase, Md.-based commercial lender, for about $295 million.

It is unclear which nursing homes were purchased.  Omega is involved in several different nursing home chains including Fundamental Long Term Care Holdings owned by Murray Forman and Leonard Grunstein.

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There have been several articles about the recent sale of nursing homes by CapitalSource.  The articles are unclear about which nursing homes will be sold.  Below are links and information from several articles.

McKnight's wrote that CapitalSource, commercial lending company to many nursing home chains, will sell off its long-term care interests to Omega Healthcare Investors in a deal valued $860 million.   The sale covers a CapitalSource lease portfolio that includes 143 long-term care facilities.  Under the deal, Omega Healthcare Investors, which already owns or holds mortgages for 254 skilled nursing and assisted living facilities, will assume $529 million in asset-related debt, and give CapitalSource $280 million cash and $51 million in OHI stock.   A second article from McKnight states that CapitalSource Inc.,sold the last of its nursing home interests. This marks the company's exit from the skilled nursing ownership business.  The latest sale takes CapitalSource out of nursing home ownership, but it says it will continue to provide financing for owners and operators of long-term-care facilities.

CapitalSource sold the 37 nursing homes to an undisclosed buyer for an all-cash price of $100 million, the company said in a statement. The money will be used to pay down debts associated with the properties. The sale is part of a wider sale of its net lease portfolio, including the already disclosed divestiture of 143 skilled nursing facilities to Omega Healthcare Investors, Inc. CapitalSource will continue to provide financing for owners and operators in the long-term care industry, according to a company spokesman.

This final sale, along with the Omega sale and a Department of Housing and Urban Development mortgage financing deal, should net CapitalSource $495 million. The company said it would use these revenues to reduce the balance on its syndicated bank facility and add to overall company liquidity. The additional liquidity should put the company in a position to expand its healthcare lending franchise, the CapitalSource release said.

The Washington Post had an article on the sale stating that CapitalSource needed help to relieve the debt acquired during the recession.  CapitalSource is a specialty financing companies that has been hit hard by the credit crisis and the recession. Auditors at Bethesda-based American Capital issued an opinion earlier this year that the firm was in danger of not continuing as a business.  The company has disappointed analysts this year because of higher-than-expected losses on its loans to businesses and commercial real estate developers.

CapitalSource, which makes loans from $10 million to $100 million to nursing homes, said selling its 180 nursing homes is part of its transition to a bank. The company earlier this year changed its status from a publicly traded real estate investment trust to a bank.  James Pieczynski, who runs CapitalSource's health-care lending business, and Steven Museles, the company's chief legal officer, will become co-chief executives.

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The March 2005 article in Counsel to Counsel discusses the complex but supposedly legal transaction involving Mariner and other entities including National Senior Care.  The article mentions the complexity of the billion dollar transaction.   After all, the deal took nearly seven
months to complete; involved roughly 80 attorneys from a half-dozen law firms; and hinged on the sale and lease-back of Mariner’s most valuable assets—its skilled nursing facilities.  Through its operating subsidiaries, Mariner owned, leased or managed nearly 260 skilled nursing facilities in more than 20 states and over a dozen long-term acute care hospitals in four states.

NSC (Harry Grunstein, Defendant Leonard's brother from Israel) came calling in April 2004. NSC wanted to take the company private and made Mariner and its shareholders an offer that really was too good to refuse—$30 per share for a stock that was at that time trading in the low $20 range, plus the assumption of some $350 million in debt.  Specifically, the deal involved selling
170 of Mariner’s 260 skilled nursing facilities to a third party—SMV, a real estate investment company—to help NSC finance the merger. Under terms of the proposed agreement, SMV would lease the properties back to either Mariner (which by then would be an NSC subsidiary), or to another company, Sava SeniorCare. Further, after establishing a bridge loan to pay off Mariner’s shareholders, NSC would use the approximately $600 million realized by the sale of  the properties to finance the acquisition—including paying off both the bridge loan and Mariner’s
outstanding debt.

Executive compensation attorneys came in to review and restructure Mariner’s senior management agreements and benefit packages—including an employee retention plan
developed after NSC made it clear it wanted to keep the Mariner management  team in place.

Many readers may be wondering how this kickback scheme affects residents in a nursing home. Jim Edwards wrote on a blog recently that "The scariest wrinkle in the Omnicare kickback case is just how vulnerable old people in nursing homes are to schemes in which drug companies allegedly induce pharmacies to prescribe drugs they otherwise wouldn’t." Edwards cites one case where one patient cited by the government’s complaint received 67 — sixty-seven! – different drugs under Omnicare’s “care”. Those drugs included Cipro, Neurontin, Heparin, Pepcid, Oxycodone and Seroquel or their generics, according to the complaint.

Remember we as taxpayers pay for these medications and services to provide for the most vulnerable citizens in our country not to go into the pockets of corrupt and greedy corporate owners.

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My next three entries will discuss the exploits and complaints against OmniCare, Mariner, SavaSeniorCare, and Murray Foreman, Rubin Schron, and Leonard Grunstein who own and operate hundreds of nursing homes through a complex maze of corporate shenanigans, and were finally caught gaming the system to make millions and deprive our loved ones of the necessary care they deserve.  Our taxes are going into the pocket of these greedy corrupt men.

There have been numerous articles on these cases and I will try to organize, summarize, and paraphrase most of them in the next three days.  It is interesting that none of the article discusses Murray Foreman and Leonard Grunstein's ownership of Fundamental Long Term Care Company that owns and operates hundreds of other nursing homes using the THI name.

The Wall Street Journal wrote geriatric pharmacy company Omnicare Inc. will pay $98 million to settle charges that it engaged in several kickback schemes with drug makers and nursing homes.  The Justice Department alleged that Omnicare regularly paid kickbacks to nursing homes in order to induce the homes to refer their patients to Omnicare for pharmacy services.  Separately, the department said it was intervening in a lawsuit alleging that two nursing-home chains, Mariner Health Care Inc. and SavaSeniorCare Administrative Services, accepted kickbacks from Omnicare in return for pharmacy-service contracts.

Reuters had an article that added additional facts.   DOJ filed a complaint against two large nursing home chains, Mariner Health Care Inc. and SavaSeniorCare Administrative Services LLC, both of Atlanta, and their principals, Leonard Grunstein, Murray Forman, and Rubin Schron, for accepting a kickback from Omnicare in return for pharmacy services contracts.  The company allegedly solicited and received kickbacks in exchange for agreeing to recommend that physicians prescribe Risperdal, a  dangerous antipsychotic drug, to nursing home patients.

The government further alleged that Omnicare regularly paid kickbacks to nursing homes by providing consultant pharmacist services at rates below the company's cost and below the fair market value of such services in order to induce the homes to refer their patients to Omnicare
for pharmacy services.

The United States alleges that Omnicare, Mariner Health Care, SavaSenior Care, Grunstein, Forman, and Schron conspired to arrange for Omnicare to pay the nursing home chains $50 million in exchange for the right to continue providing pharmacy services to the nursing homes, which together constituted one of Omnicare's largest customers. Defendants attempted to disguise the $50 million kickback as a payment to acquire a small Mariner Health Care business unit that had only two employees and was worth far less than $50 million.

After they became aware of the government's investigation, Grunstein, Forman, and Schron allegedly created false backdated documents in a further attempt to hide the kickback. These
allegations are detailed in a separate complaint that was unsealed recently.  Read the Complaint here.

More to come tomorrow.

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WSOCTV.com had an article about a Rock Hill, S.C. charged with stealing money from patients at the nursing home where she worked.   Melissa Kelly was the business manager at Magnolia Manor on Murrah Drive in Rock Hill. She has been charged with one count of forgery, and one count of elder exploitation.  Magnolia Manor is part of the chain of THI and Fundamental nursing homes.

Kelly was fired from her job last fall after an internal audit uncovered more than $65,000 of company checks that were forged and then cashed. "The more we dug, the more blatant it became," said detective David Hanoka who spent four months investigating the case.

Hanoka said dozens of nursing home patients lost money since April of 2006 without ever knowing it.  Many of the nursing home residents on Medicaid or Medicare have small trust accounts used for spending money. The money is often petty cash that's used for small day to day items. Those are the accounts police say were stolen from.

"This money was never distributed to the individuals it should've been distributed to," Hanoka said.

Instead, police believe Kelly forged and cashed the checks. Police said it's not clear how much of the missing $65,000 she is responsible for. Police focused their investigation on just 14 cases they say took place in 2008.

The state attorney general's office will continue the investigation, and prosecute the case.

Joy Patterson, the administrator at Magnolia Manor, told the media that the company was not ready to release a statement yet, but would soon.

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On Jan. 9, 2009, Trans Healthcare, Inc. filed for bankruptcy and entered into a receivership.  It seems to apply only to facilities located in Ohio and Maryland.  Trans Healthcare, Inc. is a subsidiary to THI Holdings, L.L.C. and a "sister" company to THI of Baltimore, Inc.   I would imagine the next step will be bankruptcy for THI of Baltimore, Inc. 

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On Jan. 9, 2009, Trans Healthcare, Inc. filed for bankruptcy and entered into a recievership.  It seems to apply only to facilities located in Ohio and Maryland.  Trans Healthcare, Inc. is a subsidiary to THI Holdings, L.L.C. and a "sister" company to THI of Baltimore, Inc.   I would imagine the next step will be bankruptcy for THI of Baltimore, Inc. 

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