New Fed. Court filing packs explosive allegations about Rauner’s GTCR

By DOUG IBENDAHL • February 22, 2014

 

In response to devastating television ads currently airing statewide exposing disturbing connections between Bruce Rauner’s former private equity firm GTCR and nursing home neglect and abuse, the Rauner camp issued what it calls a “fact sheet.” A “misrepresentation of the facts sheet” might be a more accurate term.

 

Rauner’s so-called “fact sheet” includes this:

 

The Latest: In Jackson, after $110 million judgment was entered, Wilkes sued more than a dozen third parties, including certain GTCR entities, GECC, and others, to collect on that judgment. Earlier this month a federal judge granted GTCR’s motion to dismiss the case.

 

The reference there is to the case of Juanita Amelia Jackson, whose estate won a $110 million default judgment for negligence, including $100 million in punitive damages, against the operators of the Auburndale Oaks Healthcare Center, a nursing home in Florida. That facility was just one of many previously owned and operated by the GTCR-controlled Trans Healthcare, Inc. (“THI”) and Trans Healthcare Management, Inc. (“THMI”). We told you about that verdict in our original story which broke the Rauner nursing home scandal over four weeks ago.

 

We followed-up with more on Juanita Jackson’s case on January 23. The 76 year-old Ms. Jackson died in July 2003.

 

That state court judgment was issued in July of 2010. Nearly four years have now passed and the estate has yet to see a dime of the award the state court ruled it deserved. Recovery has been frustrated by complicated legal maneuverings, bankruptcy filings, and some very fishy (at best) shuffling of assets.

 

When Rauner says “a federal judge granted GTCR’s motion to dismiss the case,” he’s only talking about a subsequent federal complaint filed by the estate in an effort to sort out what the estate essentially claims were fraudulent activities specifically designed to allow responsible parties to escape accountability for their negligent and unlawful acts.

 

Just one of the things Rauner’s “fact sheet” neglected to mention is the fact the motion to dismiss was granted without prejudice and specifically allowed the plaintiffs leave to amend by February 14. Also, the court’s dismissal was largely on technical jurisdictional grounds, and not on the merits. The court’s Order of February 3, 2014 is here. The court is the U.S. District Court for the Middle District of Florida, Tampa Division, and the case number is 8:13-cv-1133-T-33MAP.

 

The court subsequently granted an extension of time to file an amended complaint to Friday, February 21. The Estate of Juanita Amelia Jackson did in fact timely file an amended complaint with the U.S. District Court on yesterday’s deadline.

 

The amended complaint names eight defendants – two of which are GTCR entities: GTCR Golder Rauner, LLC and GTCR Partners VI, L.P. Bruce Rauner is not personally named as a defendant and his name is not specifically mentioned anywhere in the amended complaint. However at the time of the events at issue, he was not only one of the small number of Principals of the firm (in other words one of the partners and owners), he was also GTCR’s Chairman. Rauner was with GTCR for three decades. He left the firm in October 2012 in advance of his run for governor.

 

Here are just some excerpts from the amended complaint filed yesterday, with cites to the applicable paragraphs.

 

¶ 23. At all relevant times, GTCR provided equity funding to THI and maintained the controlling interest of THI (82.7%).

 

¶ 24. THI and its subsidiary THMI did not function or exist independent of GTCR. THI and THMI were the mere instruments and alter egos of GTCR. These entities shared a continuity of management, personnel and assets.

 

¶ 25. Through a Professional Services Agreement, GTCR operated and controlled THI and THMI by taking a hands-on-approach and day-to-day involvement in the operations of THI and THMI. The Professional Services Agreement provided for services including corporate strategy formulation, budgeting of corporate investments, acquisitions and divestures, and debt and equity financing.

 

¶ 26. At all relevant times, GTCR principals controlled the three-person board of directors of THI. The board of directors made all the material financial decisions and directed all business and strategy decisions of THI and THMI.

 

¶ 27. GTCR knowingly and intentionally conspired and participated with the Receiver and Tydings acting under color of state law to deprive Plaintiff’s federally protected constitutional rights.

 

¶ 37. At the time the Jackson Estate filed its claim against THI and THMI, these combined, vertically integrated companies were the largest private nursing home management chain in America, with revenues of over a billion dollars.

 

¶ 38. During the course of litigation, THI and THMI, however, had been made judgment-proof via a multi-year national conspiracy to defraud the creditors of THI and THMI by stealing their assets, concealing them in newly created companies, and placing the remaining shell in a Maryland state court receivership to conceal the conspiracy and avoid any scrutiny by outsiders – including the Plaintiff.

 

¶ 41. GTCR entered into a Professional Services Agreement dated July 14, 1998, wherein GTCR provided financial and management services to THI and its subsidiaries in exchange for management and consulting fees, including a percentage of any debt or financing that occurred.

 

¶ 42. Through their large investment, GTCR gained majority control over THI’s board of directors and placed their principals, [Edgar D.] Jannotta and Ethan Budin, on the three-person board in order to actively manage THI and its subsidiaries. [Editor’s Note: Edgar D. Jannotta, former Principal of GTCR, is one of the largest contributors to Rauner’s campaign fund.]

 

¶ 43. GTCR also appointed Jannotta and Budin to the three-person board of directors of THMI, which at the time was the wholly owned subsidiary of THI.

 

¶ 44. GTCR and Jannotta’s management of THI and its subsidiaries, including at the time THMI, was pervasive to the extent that many vendors and customers of THI dealt directly with GTCR principals on routine matters, including negotiating lease terms, THI’s satisfaction of provisions under such leases, acquisitions and disposition of properties, and negotiating bonus payments to management.

 

¶ 47. GTCR and Jannotta made all the material financial decisions and directed all business and strategy decisions of THI and its subsidiaries, including THMI.

 

¶ 58. By misrepresenting its earnings, THI obtained monies to which it was not lawfully entitled, including Medicare and Medicaid monies.

 

¶ 68. To be sure, GECC [General Electric Capital Corporation] and Ventas failed to notify government enforcement or regulatory authorities, as required by law, that THI had submitted fraudulent financial information to obtain credit funding, thereby concealing THI’s conduct and thus allowing THI to continue generating revenues.

 

¶ 74. Through the concealment of the illegal conduct by the THI entities, GECC made additional millions of dollars from the increases in fees and interest payments.

 

¶ 76. Through the concealment of the illegal conduct by the THI entities, Ventas made additional millions of dollars from the “fees at will” and default interest charges.

 

¶ 83. GTCR consented to conduct of THI, GECC and Ventas and allowed Medicare and Medicaid funds intended for resident care to be paid to controlling lenders including GECC and Ventas.

 

¶ 84. Due to the severity of the fraudulent financial statements, THI terminated its former CFO, Jeffrey Barnhill. His subsequent litigation with THI revealed that Barnhill was involved in illegal campaign contributions on behalf of THI and its owners.

 

¶ 85. Barnhill was reimbursed for a $49,500 contribution as a non-salary and non-taxable event he made in 2003, for which THI then sought reimbursement from Ohio Medicaid.

 

¶ 86. THI had created ledger entries for the monies which had been reimbursed to the CFO and then painstakingly charged as Medicaid costs to twenty four separate nursing home facility cost reports as “dues and contributions.”

 

¶ 87. On March 28, 2006, even after discovery that THI had committed the multiple acts of illegal campaign contributions to politicians in the State of Ohio, GECC extended $55,000,000 in loans to THI, through restatement and amendment, despite being aware of the illegal campaign contributions.

 

¶ 88. In an effort to gain distance from the illegal contribution scheme, after Barnhill revealed the illegal scheme in a federal court pleading, THI and GECC utilized a law firm, the Mintz Law Firm, to be involved in “self-reporting” the Medicaid part of the crime to the Department of Health and Human Services (“HHS”), Office of the Inspector General, to seek forgiveness.

 

¶ 89. The Office of the Inspector General imposed a fine of $137,000.

 

¶ 90. THI was also advised to report the illegal contributions to the Ohio Election Commission, which issued an $800 fine.

 

¶ 91. Neither Ohio law enforcement, nor any United States Attorney ever excused, forgave, or agreed to exonerate THI for its conduct.

 

¶ 92. By the actions of Ventas, GECC, and GTCR, THI and THMI were ultimately rendered insolvent and faced imminent bankruptcy.

 

¶ 93. By the actions of Ventas, GECC, and GTCR, THI was unable to fulfill its operating obligations, resulting in lawsuits against various THI subsidiaries for failure to maintain its healthcare facilities, to maintain appropriate insurance, and to pay rent, as well as conversion, misappropriation of revenues, racketeering, and other fraud. See Aegis Services, Inc. v. Trans Healthcare, Inc., Case No.: 2:04-cv-01175-JLG-NMK in the United States District Court for the Southern District of Ohio; Lyric Healthcare, LLC v. Trans Healthcare, Inc., Case No. C-05-013156, in the Circuit Court for Baltimore County, Maryland (owner of Florida facilities managed by THMI and THI alleging misappropriation of revenues).

 

¶ 113. GTCR consented and signed off on both THI and THMI transactions, with full knowledge that the discounted sales would render THI unable to pay their creditors.

 

¶ 116. From formation, FLTCI was nothing more than a liability-ridden shell. FLTCI had no employees, directors, officers, business activity, nor any assets other than an equity interest in THMI. These facts have been confirmed by FLTCI’s own filing in the Chapter 7 bankruptcy proceeding discussed herein. In re Fundamental Long Term Care, Inc., Case No. 8:11-bk-22258-MGW.

 

¶ 119. THMI – a multi-hundred million dollar company in 2004 – had simply vanished by the end of 2006, to the detriment of its creditors, including the Plaintiff.

 

¶ 145. First, GECC, Ventas, GTCR and Tydings designed the receivership scheme to avoid a federal bankruptcy, the thorough scrutiny of which they knew would have revealed the nature and extent of the massive fraud described above.

 

¶ 146. Second, GECC, Ventas, GTCR and Tydings designed the receivership to prevent creditors from learning of the fraudulent transfers from 2006 to 2009 and the true owners’ identities.

 

¶ 147. Third, GECC, Ventas, GTCR and Tydings designed the receivership to buy time, thereby allowing the Statute of Limitations to run on the Defendants’ fraudulent activities.

 

¶ 303. On information and belief, Defendants Tydings, GECC, GTCR, and Ventas have acted in concert with the Receiver in the above described conduct. The deprivations outlined in this Complaint resulted from the concerted action, conspiracy and prearranged plan of Tydings, GECC, GTCR and Ventas with the Receiver as their joint participant and agent. The effect of this concerted action, conspiracy and prearranged plan was to substitute the judgment of these private parties for that of the Receiver and thereby allow these private parties to exercise state power, under the color of the laws of Maryland and Florida.

 

¶ 304. By way of example, in March 2009, the Receiver and Tydings, GECC, GTCR, and Ventas facilitated the sale of THI’s last remaining asset for just ten to twenty cents on the dollar, well below GECC’s own appraised value, sufficient only to cover the remaining amounts GECC was owed.

 

¶ 307. The Receiver interfered with Plaintiff’s collection efforts to protect the interests of GECC, GTCR and Ventas, thereby allowing those private parties to exercise state powers. In return, since January 2012, these private parties have provided the Receiver with substantial sums of money to be spent at the Receiver’s direction and discretion. The Receiver has failed to account for these monetary benefits from GECC, GTCR and Ventas to his appointing court.

 

¶ 308. THI has not been dissolved and continues to have a separate legal existence from the Receiver. In this distinct capacity, THI was and continues to be a mere instrument and alter ego of GECC and GTCR, thereby making GECC and GTCR responsible for the Receiver’s repeated and improper filing of motions, responses and other documents on behalf of THI in various cases spanning numerous courts.

 

¶ 319. Defendants, the Receiver, Tydings, GECC, GTCR, and Ventas have knowingly and willingly conspired to seize the assets of former nursing home operators, conceal them in newly created entities, and leave behind empty shells for the purpose of defrauding the creditors of THI and THMI, including the Plaintiff.

 

¶ 320. Defendants, the Receiver, Tydings, GECC, GTCR, and Ventas did carry out their conspiracy by engaging in or otherwise participating in the conspiracy to seize the assets of former nursing home operators, conceal them in newly created entities, and leave behind empty shells for the purpose of defrauding the creditors of THI and THMI, including the Plaintiff.

 

¶ 321. GTCR, through its agent and alter ego THI, and through its agents Jannotta and Budin, misrepresented the earnings of THI in order to obtain monies to which THI and GTCR were not lawfully entitled, including Medicare and Medicaid monies.

 

¶ 323. Shortly after July 1, 2004, THI CEO and President W. Bradley Bennett, acting as an agent of GTCR, Janotta, Budin, and GTCR’s alter ego THI, suggested to GECC and Ventas that sanctions by regulators would likely seriously impair the ability of GECC and Ventas to realize on the assets of the enterprise and recover their investments.

 

¶ 324. Having obtained actual knowledge of the material financial misrepresentations and use of false information to obtain credit funding and Medicare and Medicaid funds, GECC and Ventas entered into an agreement, tacit if not explicit, for GECC and Ventas to join in a conspiracy with GTCR and with each other to maintain silence about the fraudulent activity of GTCR and its alter ego THI and to assist in the fraudulent concealment of that activity.

 

¶ 325. GTCR entered into a conspiracy to pay GECC and Ventas with fraudulently obtained funds and with funds intended to be spent on resident care, in order to protect GTCR, GECC and Ventas from the damaging financial consequences of exposure of THI’s misconduct.

 

¶ 326. GTCR would cause GECC and Ventas to receive not only the monies owed to them (i.e. principal, interest and certain fees), but also additional monies which were not: penalty fees, penalty rates of interest, and forbearance fees. These fees and penalty interest rates were fraudulent in that GECC and Ventas received these additional monies as consideration for tactitly or expressly agreeing to maintain silent about fraudulent activity and agreeing to assist in fraudulent concealment of the fraudulent activity.

 

¶ 327. GECC and Ventas joined the conspiracy suggested by GTCR and its agents so GECC and Ventas could get paid and then retain what they received. GECC and Ventas each had an extraordinary economic motivation for joining the conspiracy: millions of dollars of additional profits above and beyond the principle, interest and fees that GECC and Ventas were entitled to receive.

 

¶ 329. Tydings acquired actual knowledge of fraudulent activity by GTCR, its alter ego THI, GECC and Ventas, and entered into an agreement, tacit if not explicit, to maintain silence about the fraudulent activity of GTCR and to assist in the fraudulent concealment of that activity by filing the Receivership petition and by other means.

 

¶ 332. The Receiver acquired actual knowledge of fraudulent activity by GTCR, its alter ego THI, GECC and Ventas, and entered into an agreement, tacit if not explicit, to maintain silence about the fraudulent activity of GTCR and to assist in the fraudulent concealment of that activity by attempting to stay Plaintiff’s tort litigation, thereby frustrating the discovery process, and by other means.

 

¶ 345. GTCR, GECC, and Ventas entered into an agreement, tacit if not explicit, to extend and further their concealment of fraudulent conduct through use of the legal processes authorized by Maryland Rule 13-102(a)(2).

 

¶ 353. The actions of the Receiver, Tydings, GECC, GTCR, and Ventas were intentional, wanton, malicious, and oppressive, thus entitling the Plaintiff to an award of punitive damages.

 

The 68-page Amended Complaint filed on February 21, 2014 can be read in its entirety HERE.

 

These are of course allegations, and all of the defendants will have their opportunity to respond with their own court filings very soon – although I certainly wouldn’t expect that to happen before the March 18 Primary.

 

There is a lot of complexity here – complexity which GTCR and others have intentionally contributed. And this particular lawsuit is only one of the many moving parts in this nursing home story. There is for example also related litigation working its way through U.S. Bankruptcy Court in Florida right now.

 

But on March 18 Republicans will not be deciding a legal case. We’ll be choosing our standard bearer and the person we as a party say is the best leader to oversee and run the government of America’s fifth most populous state.

 

Republicans – and no resident of Illinois for that matter – can afford to wait for GTCR’s lawyers to weigh in on these extremely serious matters.

 

Many questions remain unanswered. But I know one thing for certain. If Bruce Rauner was running with a “D” by his name, every Republican I know would be demanding answers and calling for the candidate to immediately come clean.

 

Doug Ibendahl is a Chicago Attorney and a former General Counsel of the Illinois Republican Party.

END

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