Foundation nets $44M in NHI lawsuit settlement

NHI buyout of Florida nursing homes ends dispute after harsh words between H3GM and Waller; deal effectively creates new $44M local foundation [Updated with statement from Care Foundation of America]

Email | Print By E. Thomas Wood

Murfreesboro-based National Health Investors Inc. has agreed to buy six Florida nursing homes from Nashville-based nonprofit owner Care Foundation of America Inc. for $67 million.

The buyout ends a year-long legal dispute, but only after the proceedings led to bitter arguments between attorneys from Waller Lansden Dortch & Davis, representing CFA, and Harwell Howard Hyne Gabbert & Manner, representing NHI. 

As a result of the purchase, CFA will exist as an independent nonprofit entity with assets of some $44 million, the difference between the purchase price and the debt on the homes. Like the Memorial Foundation, created in 1994 after the sale of Nashville Memorial Hospital in Madison, CFA will be free to choose its mission in the community.

Waller attorney Paul Davidson said today that CFA's board, led by Nashville entrepreneur Jimmy Earle, will not discuss its future plans publicly until a bankruptcy judge has approved the transaction.

NHI's announcement today said Tennessee Attorney General Bob Cooper has approved the settlement. After Care Foundation of America filed its lawsuit against NHI in January, the AG's office joined that case as a plaintiff in May. Among other claims, the plaintiffs alleged:

• that NHI effectively controlled the foundation's board of directors from 1999, when it was created to purchase the six 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.

CFA was asking for compensatory and punitive damages of more than $25 million. The lawsuit was set to go to trial on Tuesday when the parties reached the settlement.

When Waller's attorneys brought the case on behalf of CFA, they simultaneously filed a Chapter 11 bankruptcy petition on behalf of the nursing home owner. Yesterday, U.S. Bankruptcy Court Judge Keith M. Lundin approved the payment of $326,000 in legal fees and expenses to Waller for its work on the case since June; the firm previously billed another $236,000 for earlier work.

As recently as last week, Davidson and four other Waller lawyers complained in a court filing about "discovery misconduct" by NHI that impeded the lawsuit's fact-finding process. Among other claims, the filing said former NHI officer Ted LaRoche had ordered his computer hard drive wiped clean and disposed of, three weeks after the lawsuit was filed on January 2 of this year.

H3GM, on behalf of NHI, shot back in a response filed Monday, complaining that Waller had "taken this hard-fought litigation to a new low by making unwarranted assertions and insinuations about the discovery process." The filing called portions of the Waller discovery claims "shameful," saying that "this conduct is not representative of the Nashville bar."

NHC bought LaRoche the computer in question for personal use long after he retired from NHI in 2002, the filing said, and a technician found in December 2008 that "something was shot on the motherboard and the power supply was out." The hard drive was scraped as a standard security precaution, the filing stated.

"As CFA engaged in its scorched-earth campaign over the last year (including nearly three dozen third-party subpoenas, tens of thousands of pages of production, and over two dozen depositions), NHI and its counsel responded both fairly and honestly," H3GM's response stated.

"NHI and its counsel understand that plaintiffs' counsel may now feel the need to argue about something other than the merits when asking for punitive damages and attorney’s fees. But that does not justify this style of practice. NHI and its counsel very much look forward to the trial of this case on the merits," the filing concluded, one day before the parties reached the settlement.

Separately, securities class-action lawyers in Nashville and Pennsylvania filed a shareholder derivative lawsuit in October against four NHI board members, claiming they were complicit in the alleged fraud that led to CFA's lawsuit. That case remains pending.

CFA this afternoon released a statement about the deal:

"The settlement, if approved, will provide an enormous benefit to the residents of Nashville / citizens of Tennessee. As part of the settlement terms, CFA will receive tens of millions of dollars to make available to local citizens in need of education and healthcare services."

Joe Keane, a partner with Harpeth Consulting who serves as a CFA board member and served as its chief restructuring officer, praised the work of Davidson and his Waller colleagues in the statement. He said Davidson "assembled a formidable case structure and prepared and carried the case to the courthouse with zealous passion," adding: "He is incredible."