Forrest Preston
The federal government has dropped an effort to add Life Care Centers of America chairman Forrest L. Preston as a defendant in its major "false claims" action in Federal Court in Chattanooga.
Attorneys for the government said, instead, the U.S. will "pursue its claims against Mr. Preston in a separate civil action."
In the motion the government repeated its earlier claim that "since the filing of its complaint, the United States has uncovered evidence that revealed the extent of Mr. Preston's involvement in the management of Life Care, the degree to which he was aware of complaints from his own employees regarding the conduct at issue in this litigation, and the degree to which he ignored corporate formalities and benefited unjustly from Life Care's unlawful conduct."
The government noted that Federal Judge Sandy Mattice held a hearing Oct. 21 and the judge observed that the government could have filed the proposed claims against Mr. Preston in a separate suit."
Defense attorneys had contended that the motion was filed way too late - years after the case originated.
The original motion, filed Aug. 8, also cited "the extent to which Medicare funds paid to Life Care as a result of its submission of false claims have been transferred, directly or indirectly, to Mr. Preston."
It said, "The United States seeks leave to allege a single claim against Preston individually for unjust enrichment."
The 82-year-old billionaire is the founder and sole stockholder of Life Care Centers, which is based in Cleveland, Tn.
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.
The suit asked for the recovery of "millions of dollars that Life Care caused the Medicare and TRICARE programs to pay for services that were not covered by the skilled nursing facility benefit, that were not medically reasonable and necessary, and that were not skilled in nature."
The motion said 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 said 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 said 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 said, "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 said 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 said 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 said 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 said, as a result of his actions, Life Care has become "severely under-capitalized."
The motion said 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.