During an evidentiary hearing on Wednesday, Federal Judge Sandy Mattice reiterated his questions about the federal government’s late filing of a motion seeking to add Life Care Centers of America chairman Forrest L. Preston as a defendant in its major "false claims" action.
The federal action, filed in 2012, asks millions of dollars in reimbursements, plus treble damages, against Life Care Centers as a result of two whistle blower lawsuits filed in federal court in Chattanooga in 2008.
Now, prosecution is attempting to push an amendment which would specifically add Mr.
Preston, who, according to one account, has a net worth of $2.1 billion, as a defendant in the case.
But Judge Mattice has said before, and said again on Wednesday, that he is unsure about the late-filed motion and the necessity of the amendment.
In fact, he suggested that perhaps the prosecution’s best course of action would have been to file a separate lawsuit for the Life Care Centers leader instead of trying to bring him into the current one.
When the motion was presented, he said, “I view this as a very significant potential change in the nature and scope of this lawsuit. I have a feeling that Mr. Preston is not going to lie down about this.”
He added that if the amendment is granted, he expects the defense “Will file a massive motion to dismiss.”
According to Judge Mattice, he believes it is likely that if the amendment is approved, the entire case will come to a standstill as the defense attempts to pursue dismissal, but if the suits were separate, the ongoing Life Care case could continue unimpeded as it might be a “cleaner, procedural posture.”
The current proposed motion says Mr. Preston owns all the Life Care nursing homes either in whole or part and he was "the ultimate financial beneficiary of all revenues billed and collected, including Medicare and Medicaid funds, by Life Care Centers of America and its affiliated nursing homes" during the term covered by the lawsuit.
It says he "has operated Life Care and its related entities without regard for the separateness between himself and the corporate forms among the entities. As Preston himself explained in a deposition in another case, 'a benefit to me is the corporation. That's synonymous (it) really amounts to moving my own money from (my) own trousers from one pocket to another."
The motion says Life Care is organized as an S-Corporation and all of Life Care's income and losses "are reported on Preston's personal tax returns and are taxed to Preston (rather than at a corporate level)."
It says, "Preston's control over his unitary nursing home business also allowed him to secure significant loans on behalf of Life Care and his other businesses. For example, Life Care and dozens of other Preston-owned entities borrowed hundreds of millions of dollars from GE Capital in December 2010."
The motion says he has the sole authority to appoint and remove any member of Life Care's board of directors without cause and to amend the corporation bylaws at will.
It says he "has further controlled Life Care and its operations by filling open positions on the board with his personal friends and advisors, and at times, even his administrative staff. Preston restricted who could speak directly to the board and what information individuals were allowed to share with the board. Preston required materials to be filtered through him before being shared with the board, and executives were not allowed to speak at board meetings unless called on by Preston directly.
Through his actions, Preston dominated Life Care and restricted the board's ability to adequately manage and oversee the company."
It was claimed that he was involved in numerous hiring and firing decisions, including dismissing two compliance officers.
The motion says Mr. Preston, who is now listed as one of the richest men in America, has borrowed more than $50 million from Life Care. It says, "At times, these loans were not approved by the board and had no set repayment terms. Moreover, Life Care did not always secure collateral or other security from Preston."
It says, as a result of his actions, Life Care has become "severely under-capitalized."
The motion says under his control that Medicare has paid to Life Care "billions of dollars, a substantial portion of which were for medically unreasonable and unnecessary rehabilitation therapy services."
One complaint was brought by Glenda Martin, a registered nurse and a former staff development coordinator of Life Care Center of Morristown, Tn.
Another was by Tammie Taylor, a former occupational therapist of Life Care Center at Inverrary, in Lauderhill, Fla.