$257M False Claims Act Judgment Leads to Six-Entity Nursing Home Bankruptcy

Six skilled nursing entities — spanning operations, management, and rehabilitation — this week filed for Chapter 11 bankruptcy after the reinstatement of a multimillion False Claims Act (FCA) judgement against them last year.

The entities themselves are part of a group of corporate affiliates of major nursing home operator Consulate Health Care, but the bankruptcy declaration is limited to the six limited liability companies involved in the FCA case — a case that Consulate was never involved in or affiliated with, according to a statement from the operator provided to Skilled Nursing News via e-mail.

“Consulate is not, and never was, a named Defendant in the lawsuit filed; nor were the remaining 138 care centers who are unaffected in this matter and will continue conducting business as usual,” the statement said. “Stated more plainly, Consulate Health Care is not filing for bankruptcy and remains committed to providing excellent care and services to our residents, patients, families, and local communities.”


Law360 first reported on the bankruptcy filing on March 2.

The entities involved in the bankruptcy case are: 207 Marshall Drive Operations LLC (Marshall), 803 Oak Street Operations LLC (Governor’s Creek), Consulate Management Company, LLC (CMC I), CMC II, LLC (CMC II), Salus Rehabilitation, LLC (Salus) and Sea Crest Health Care Management, LLC (Sea Crest).

The FCA qui tam case, a type of suit that lets private citizens bring claims on behalf of the federal government, was brought by registered nurse Angela Ruckh in June 2011 and filed under seal in the U.S. District Court for the Middle District of Florida.


The complaint — which was amended several times, and was under seal when Consulate acquired Marshall, Governor’s Creek, Salus, and Sea Crest in December 2011 — alleged that Sea Crest, CMC II, Marshall, Salus and Governor’s Creek defrauded Medicare and Florida’s Medicaid program through improper billing practices between January 2011 and May 2011.

The original judgment against the defendants was overturned in 2018, but in June 2020, the verdict was reinstated.

According to the March 1 declaration of Salus chief restructuring officer Paul Rundell — a managing director at Alvarez & Marsal North American Corporate Restructuring — the entry of judgments on February 9 of this year precipitated the bankruptcy filings.

“The Debtors lack the financial capacity to satisfy the Ruckh Judgments and cannot risk an interruption in care to the residents of the Managed SNFs that might result from enforcement of the Ruckh Judgments,” Rundell wrote in the declaration. “Although the Debtors remain open to a constructive dialogue to resolve the Ruckh Judgments, prior efforts have not resulted in a resolution. Accordingly, the Debtors’ efforts are focused on continuing to serve residents of the Managed Facilities while implementing a process to market and sell their assets for the highest and best price and distribute the proceeds pursuant to the Bankruptcy Code’s priority scheme.”

The total judgment amount for Salus, Marshall Governor’s Creek, Sea Crest, and CMC II as Sea Crest’s successor came to $257.72 million.

The debtors engaged Evans Senior Investments (ESI) to act as broker for procuring financing for the bankruptcy cases and in conjunction with a possible sale of the debtors’ assets, according to Rundell’s declaration. An affiliate of the debtors issued them a proposed debtor-in-possession (DIP) term sheet for a multi-draw term loan facility with a maximum credit amount of $5 million.

“The proposed DIP financing provides the best and only path forward to address the Debtors’ immediate liquidity needs to ensure that they are able to continue operating their businesses and provide for the care, welfare and safety of their residents,” the declaration argued.

ESI also has helped the debtors secure “multiple term sheets from different prospective purchasers” of the debtors’ assets, it noted.

One of the term sheets allows for the sale of the Marshall and Governor’s Creek assets to a third party, while the other allows for the sale of the assets of CMC II and certain other assets to an affiliate of the debtors.

Marshall is a 120-bed SNF in Perry, Fla., that generated approximately $450,000 in total free cash flow for the 12-month period ending January 31, 2021, according to the declaration. Governor’s Creek is a 120-bed SNF in Green Cove Springs, Florida, that lost approximately $330,000 in total free cash flow for the same time period.

The cash flow for both facilities excludes the impact of CARES Act grants for combatting the effects of the COVID-19 pandemic.

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