A bankruptcy judge blocked an attempt by a major investor in a nursing home chain to shield itself from settlement payments and liability in lawsuits alleging injuries and deaths to hundreds of patients, emboldening those seeking millions of dollars in damages.
Genesis HealthCare, once the nation's largest nursing home chain, filed for Chapter 11 bankruptcy reorganization in July, seeking to shield its controlling investor Joel Landau from legal liability. In court papers, Genesis initially estimated that all settled and pending cases, which it said numbered nearly 1,000, would cost $259 million.
KFF health news reported this month that in the years before the bankruptcy filing, Genesis had settled at least 155 patient injury and death claims with provisions that allowed it to defer payments, sometimes for more than a year. As a result, when Genesis filed for bankruptcy in July, it still owed $41 million of the $58 million promised in those agreements with families of current or former residents, according to bankruptcy filings and cases reviewed by KFF Health News.
At hearings Wednesday and last week in U.S. Bankruptcy Court in Dallas, Judge Stacy Jernigan said she would not approve the sale of the company's assets, which includes the legal release of Landau and private equity partner David Gefner. Landau, who was trying to acquire assets through another company he controls, did not attend the bankruptcy hearing and did not respond to the subpoena, lawyers said in court.
“I'm really encouraged that somebody is looking and paying attention to this,” said Erin Pearson, whose father, James Sanderson, died in 2018 after spending less than a month at a Genesis facility in Albuquerque. “And the guy who owns the most shares not only didn’t show up, but he couldn’t just move things around and buy out” the nursing homes.
While at the facility, Sanderson developed an intestinal obstruction and sepsis, but was not sent to the hospital for more than a week, according to Pearson's lawsuit filed in 2019.
Genesis did not pay Pearson the $500,000 it agreed to as part of the settlement, according to Pearson's lawsuit filed in bankruptcy court. “I don’t know if I’ll ever see this settlement, but I’d like to hope,” Pearson said in a Dec. 17 interview.
Genesis, Landau, Gefner and their lawyers did not immediately respond to requests for comment. In a public statement last week, David Harrington, executive chairman of Genesis, praised Landau and his company's investment in Genesis for helping it avoid bankruptcy in 2021.
Ian Norris, who is representing 19 clients in claims against Genesis, including four who were not paid, said the judge's decision was “a huge victory for all those who faced the possibility that they would not be able to repay the payments Genesis promised them before the bankruptcy.”
According to Genesis' bankruptcy filings, the company owes more than $1.6 billion in unpaid unsecured claims, including claims not only from former residents and their families, but also from a pension fund; contractors who provided medical services and equipment; and Pennsylvania, New Mexico and West Virginia, which owe taxes to service providers. Daniel Simon, a lawyer representing Genesis' owners, said in court Dec. 17 that the sale proceeds would provide $155 million to those creditors as part of a bid to acquire the nursing home's assets from a new company controlled by Landau and Geffner.
Genesis last month auctioned its assets and said Landau's bid was the best, but the U.S. Trustees' Office and creditors objected, saying Genesis unfairly excluded one group from the bidding and downplayed another group's bid that could have brought more money to creditors. Jernigan said the auction had too many irregularities for her to approve and ordered the auction remade under the supervision of the U.S. Trustee's Office.
“I recognize there is tremendous concern about Mr. Landau, but he is not here,” Jernigan said last week. “I cannot approve these releases without him appearing as a witness and without being convinced of his good faith.”
Sen. Elizabeth Warren (D-Mass.), who along with two Senate colleagues filed an amicus brief questioning the fairness of the auction, said in a statement to the media: “A private equity firm tried to abuse the bankruptcy system to avoid paying what they owe to seniors who are neglected in nursing homes. This is a textbook example of why we need to take private equity out of health care altogether, and this decision is a good step forward in the fight to help Genesis victims.”
At a Dec. 17 hearing, representatives of the company controlled by Landau and Geffner said they would reapply to buy Genesis' remains without promising relief. The auction is expected to take place in January. Simon, Genesis' lawyer, said at the hearing that the judge's decision “humiliated us.”
Lawyers for former and current Genesis residents said they hope to sue Landau and other parties who controlled the company and led it into bankruptcy. John Anthony, a Tampa lawyer who represents 341 plaintiffs, said: “The victims believe Mr. Landau fully deserves his place on the bench, so he can explain to a jury of his peers how he apparently got so rich by winding up all these supposedly insolvent businesses.”
