Nashville at law: Foundation fraud claims lead to shareholder lawsuit

Also: A bankrupt church and a landscaper's scam claims [From our print edition featured in Monday's City Paper]

10-26-2009 12:07 AM —

A new legal front has opened in the ongoing battle between Murfreesboro-based National Health Investors Inc. and adversaries who accuse it of concocting a scheme to cheat a nonprofit nursing home company out of $25 million.

Securities class-action lawyers in Nashville and Pennsylvania have teamed up to file a shareholder derivative lawsuit against four NHI board members, claiming they were complicit in the alleged fraud that led to Care Foundation of America's lawsuit against the company earlier this year. Tennessee Attorney General Bob Cooper joined that case as a plaintiff in May.

Shareholder derivative lawsuits are brought in the name of a shareholder – in this instance, Washington state resident Burt Shearer – on behalf of a corporation that has allegedly been harmed. The complaint, filed last week in Nashville's U.S. District Court, names NHI directors Andrew Adams, Rob McCabe, Robert Webb and Ted Welch as defendants.

Adams is the founding chairman and CEO of the company, a publicly traded real estate investment trust focused on the nursing home industry, and the former leader of related firms National HealthCare Corp. and National Health Realty Inc. McCabe chairs Pinnacle Financial Partners, Nashville's largest locally headquartered bank. Webb and Welch are both real estate developers.

Nashville attorney Paul Kent Bramlett and three lawyers from Barroway Topaz Kessler Meltzer & Check LLP of Radnor, Pa. filed the lawsuit. It repeats many of the claims made previously by Care Foundation and the AG:

that NHI effectively controlled the foundation's board of directors from 1999, when it was created to purchase six Florida homes with financing from NHI, until last year, when an entirely new board took over after the AG began scrutinizing CFA's ties to NHI;
that NHI manipulated CFA into paying more than the homes were worth and financing them on terms that were unfairly onerous;
that NHI falsely reported the terms of the purchase to the Securities and Exchange Commission; and
that NHI's dealings with the foundation violated federal tax laws.

The earlier lawsuit, filed as an adversary proceeding in Care Foundation's Chapter 11 bankruptcy case, seeks compensatory and punitive damages of more than $25 million. The case is set for a December trial.

"NHI adamantly denies CFA's claims and is vigorously defending against CFA's complaint," the company stated in its most recent quarterly report filed with the SEC.

The new legal action asserts that the directors knowingly engaged in the company's "improper business practices," thus "breaching their fiduciary duties." It seeks unspecified damages.

Lawyer Alex Fardon of Harwell Howard Hyne Gabbert & Manner, which represents NHI in the bankruptcy litigation, said last week he is confident the individual directors named "will vigorously defend themselves against these allegations." Fardon said court rules would not permit him to address the substance of the new claims.

Other legal news of late:

United States Bankruptcy Court

Greater Faith Missionary Baptist Church. Chapter 11 petition filed Oct. 21. Assets: about $1.24 million. Debts: around $932,000. The church building and its lot, at the corner S. 11th and Boscobel Streets, account for most of Greater Faith's assets with a valuation of $1.24 million. A $900,000 SunTrust Bank loan on the property is the main liability shown in the bankruptcy filing. SunTrust appointed a successor trustee for the loan (normally a first step toward foreclosure) in late August.

Metro property records show that the church acquired the site in 2004. Michael Joyner, pastor of the church, is listed as a co-debtor. Debtor's attorney: Kevin Key of Nashville.

Davidson County Circuit Court

Henry Gonzales v. Lisa & James Cunningham. Filed Oct. 19. Robertson County resident Gonzales, whose legal complaint starts out by stating that he is a legal resident of the U.S., says Lisa Cunningham hired him in her capacity as a senior real estate manager for First Tennessee Bank to do landscaping work at a number of bank branches. Only thing is, she didn't do so as Lisa Cunningham or as a First Tennessee employee. To Gonzales, she was "Maria," and her husband posed as "Mike."

"Maria" allegedly told set up an e-mail address in the name of Gonzales' business and arranged for the bank to communicate with him only through that means. He says that without his knowledge, she also established an account at Renasant Bank in the name of his business. The bank then made payments for his work into that account, and "Maria" issued payment to Gonzales – keeping an unspecified cut for herself.

Accusing the Cunninghams of "intentionally, fraudulently and maliciously" misrepresenting themselves, Gonzales seeks compensatory damages of $300,000 and a punitive award of up to nine times that amount. Judge Tom Brothers has entered a temporary restraining order freezing the bank account. Plaintiff's attorney: Suzanne Wheeler of Goodlettsville.

Efforts to reach the Cunninghams at their Mt. Juliet home have been unsuccessful. First Tennessee spokesperson Anthony Hicks said bank policy prohibits comment on pending litigation.

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