A bankruptcy judge blocked an attempt by a nursing home chain's primary investor to shield himself from settlement payments and liability in lawsuits alleging hundreds of patient injuries and deaths, encouraging those pursuing millions in damages.
Genesis HealthCare, once the nation's largest nursing home chain, filed for Chapter 11 reorganization bankruptcy in July with a proposal to protect its controlling investor, Joel Landau, from legal liability. In court papers, Genesis had originally estimated all its settled and pending cases - which it said numbered nearly a thousand - would cost $259 million to resolve.
KFF Health News reported this month that in the years before filing for bankruptcy, Genesis had settled at least 155 patient injury and death lawsuits with provisions that allowed it to delay paying, sometimes for more than a year. As a result, when Genesis filed for bankruptcy in July, it still owed $41 million out of the $58 million promised in those settlements with families of current or former residents, according to the bankruptcy and case records KFF Health News reviewed.
In hearings Wednesday and last week in U.S. Bankruptcy Court in Dallas, Judge Stacey G.C. Jernigan said she would not approve a sale of the company's assets that included legal releases from liability for Landau and a private equity associate, David Gefner. Landau, who was seeking to purchase the assets through another company he controlled, did not attend the bankruptcy hearings or respond to a subpoena, lawyers said in court.
"I'm very encouraged that someone is watching and paying attention to this," said Erin Pearson, whose father, James Sanderson, died in 2018 after spending less than a month in a Genesis facility in Albuquerque. "And the guy who owns the most shares, not only did he not show up but doesn't just get to move things around and rebuy" the nursing homes.
According to Pearson's lawsuit, filed in 2019, Sanderson developed a bowel obstruction and sepsis while at the facility but was not sent to the hospital for more than a week.
Genesis did not pay Pearson the $500,000 it agreed to in a settlement, according to Pearson's claim filed in bankruptcy court. "I don't know if I'll ever see that settlement, but I would like to be hopeful," Pearson said in an interview Dec. 17.
Genesis, Landau, Gefner, and their attorneys did not immediately respond to requests for comment. In a public statement last week, David Harrington, the executive chairman of Genesis' board of directors, praised Landau and his company's investment in Genesis for helping it avoid bankruptcy in 2021. That "lifeline," he said, enabled Genesis to transform into a "nimble, market-based model dedicated to prioritizing resident and patient care."
Ian Norris, who represents 19 clients with lawsuits against Genesis - including four who have not been paid their settlements - said the judge's ruling was "a huge win for all those who were confronting the possibility that they would not be able to recover the settlements that were promised to them by Genesis prior to the bankruptcy."
According to Genesis' bankruptcy filings, the company owes more than $1.6 billion in unpaid claims that are not secured by liens, including claims not only from former residents and their families but also from a pension fund; contractors that provided health services and equipment; and Pennsylvania, New Mexico, and West Virginia, which are owed provider taxes. Daniel Simon, a lawyer representing Genesis' owners, said in court on Dec. 17 that $155 million would be available from the proceeds of the sale for these creditors under a bid for the nursing home assets from a new company controlled by Landau and Gefner.
Genesis last month held an auction for its assets and announced that Landau's bid was the best, but the U.S. Trustee's Office and creditors objected, saying Genesis had unfairly excluded one group from bidding and downplayed the value of another group's bid that would have provided more money to creditors. Jernigan said there were too many irregularities in the auction for her to approve it and ordered it be redone under the watch of the U.S. Trustee's Office.
"I am aware that there is huge concern about Mr. Landau, and he is not here," Jernigan said last week. "There is no way I can approve these releases without him on the witness stand and me 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 media statement: "A private equity company tried to abuse the bankruptcy system to slither out of paying what they owe to neglected seniors in its nursing homes. This is a textbook case of why we need to get private equity out of health care altogether, and this decision is a good step forward in the fight to deliver relief for the victims of Genesis."
In the Dec. 17 hearing, representatives of the company controlled by Landau and Gefner said they would bid again for the remains of Genesis without the promise of liability releases. The auction is expected to occur in January. Simon, the lawyer for Genesis, said at the hearing that the judge's ruling "has humbled us."
Lawyers for former and current Genesis residents said they hope to sue Landau and other parties that controlled the company and led it into bankruptcy. John Anthony, a Tampa attorney who represents 341 claimants, said, "The victims believe that Mr. Landau richly deserves his day in court, so he can explain to a jury of his peers how he has apparently gotten so rich running all these supposedly insolvent facilities into the ground."
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