After the verdict and damages had been reached, and without any prior notice, one of the nation’s top lenders to healthcare providers was wrongly impleaded as a defendant in a series of Medical Malpractice cases. In said cases, the manager of a nursing home where malpractice had allegedly occurred was a guarantor on loans made by the lender to other nursing homes which had no malpractice allegations against them. The individual jury awards for punitive and compensatory damages ranged from $50 million to over $1.5 billion; in total the lender was at risk for many billions in damages.
Issues
- The parent company of the guarantor management company owned or managed approximately 230 facilities at its peak
- The lender provided either real estate or working capital financing for a total of 28 homes (the “Borrowers”), but none of the facilities were the location of the alleged malpractice
- The total amount lent to the 28 Borrowers never exceeded $55 million and had been repaid in full prior to the lender being aware that any of the malpractice cases in question even existed
- The Borrowers were in technical default for four of the six years the loans were outstanding
- During the last four years the loans were outstanding, they were subject to an orderly workout, including the sale of assets; the lender was ultimately paid in full without ever calling on any of the guarantors for payment
- The Plaintiff alleged that the Lender’s actions (accepting repayment of the amounts due, combined with the restrictions imposed by the loan documents and a series of forbearance agreements) constituted “effective management control” of the organization that enabled the Lender to get funds that should have been available to pay the malpractice awards to the injured parties or their families
Approach
- Obtained all of the loan documents of this very complex loan structure and flow charted each of the loan structures, which illustrated the role of its Borrowers in the larger organization
- Reviewed all payments received by the lender and determined that they were in accordance with the terms of the loan agreements, were reasonable, and reflected market rates for similar loans in effect at that time
- Reviewed all of the Plaintiff’s pleadings and their expert reports
- Read or attended more than 40 depositions taken in the case
- Prepared an expert report which rebutted the allegations of the Plaintiff and its experts
Results
- After three years and millions of dollars in defense costs, the Lender was successful in securing a summary judgment against the Plaintiff on all counts