Financial pressures and burdens stemming from multiple pending class action lawsuits have forced 19 affiliated senior care entities in California to each file for Chapter 11 bankruptcy protection.
Country Villa Service Corp. manages 19 entities that provide assisted living, skilled nursing, rehabilitation, and other health-care related services. Despite each entity filing separately, they essentially operate as one consolidated business entity, a court document notes, and CVSC itself is not filing for bankruptcy.
Although Country Villa has been facing cash flow pressures in recent months, according to chief executive officer Stephen Reissman, its legal issues are what caused it to file for bankruptcy protection, the Wall Street Journal reports. Country Villa is currently the target of seven class action lawsuits relating to wage and hour claims, improper patient care, and medications.
“While the Debtors and their related entities have denied liability in all of these class action lawsuits, the potential cumulative liability for all of the defendants in these actions are projected to be in the millions of dollars, and the cost of defending these actions have resulted in an enormous financial burden on the Debtors,” says a filing.
The senior care communities experienced poor financial performance in 2012 and 2013 blamed in part on Medicaid reimbursement delays by the state of California along with a reduced line of credit and unexpected large cash demands related to insurance needs in 2011 and 2012.
Each entity filed a voluntary petition under Chapter 11 on March 4 or March 5, 2014: Plaza Healthcare Center LLC; Country Villa Plaza LP; Belmont Heights Healthcare Center LLC; Claremont Healthcare Center Inc.; Country Villa East LP; Country Villa South Bay LLC; Westwood Healthcare Center LP; East Healthcare Center LLC; Los Feliz Healthcare Center LLC; Mountainside Operating Company LLC; North Healthcare Center LLC; North Point Health & Wellness Center LLC; South Healthcare Center LLC; Westwood Healthcare Center LLC; Wilshire Healthcare Center LLC; Sheraton Healthcare Center LLC; Country Villa Imperial LLC; Country Villa Nursing Center Inc.; and RRT Enterprises LP.
“While in many instances separate entities are used for operations to contain or compartmentalize liability, it appears that the debtors are experiencing contagion among the affiliated entities due to widespread and intertwined financial and legal challenges,” George Mesires, a partner at Faegre Baker Daniels LLP who is not connected to the Country Villa case, told SHN. “The debtors have common ownership, common creditors and a common prepetition credit agreement, and are all named defendants in numerous class actions.”
Three of the 19 entities—Plaza Convalescent Center, Westwood Healthcare Center, and Sheraton Healthcare Center—have no beds, according to a court document. In total, the company has 1,905 beds with a 90% occupancy rate and intends to maintain operations throughout the bankruptcy reorganization. Motions have been filed requesting authorization to access cash collateral and pay wages in order to continue operations.
“The Debtors believe that they have created a profitable financial model and are highly confident they will be able to successfully and efficiently reorganize and emerge from bankruptcy,” says a filing.
The filing was made in the U.S. Bankruptcy Court in Orange County, Calif., and the case has been assigned to Judge Catherine E. Bauer. The healthcare properties are located in Long Beach, Claremont, Los Angeles, North Hills, Ontario, Santa Ana, Van Nuys, San Bernardino, and Fresno, California.
Written by Alyssa Gerace
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