Relevant Documents:
Voluntary Petition
First Day Declaration
Motion for Relief from Stay
Injunctive Complaint - Covered Actions
Injunctive Complaint - Qui Tam Action
Injunctive Complaint - California State Court Action
Summary |
Debtors operate a skilled nursing facility in Hayward, Calif., and are part of a larger Mariner Health enterprise including nondebtors that operate 20 skilled nursing facilities |
Filed in wake of adverse litigation judgment that “exceeds the value of the Debtors’ assets and operations multiple times over” is in on appeal |
In negotiations with potential DIP lender; exploring options including restructuring or sale |
Atlanta-based Mariner Health Central Inc., filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, along with affiliates
Parkview Operating Company LP and
Parkview Holding Co. GP LLC. The debtors are part of the Mariner Health care group of healthcare providers, which consists of more than 50 related entities, only three of which are debtors. The larger Mariner enterprise operates 20 skilled nursing facilities in southern and northern California. Debtor Parkview Operating, referred to by the debtors as “Parkview,” operates a skilled nursing facility in Hayward, Calif.
The precipitating factor for the chapter 11 filing was the recent entry of an adverse judgment of $4.5 million in compensatory damages and more than $9 million in punitive damages against the debtors (except that Parkview Holding is not a named defendant in any of the lawsuits, but “faces potential liability as the general partner of Parkview”), in a California state court lawsuit brought by 10 plaintiffs based on allegations relating to their residencies at the Parkview facility. The judgment amount is “in an amount that far exceeds the Debtors financial capacity to satisfy the judgment,” according to the first day papers. Pursuant to a reduced judgment, Parkview Operating is liable for approximately $6 million and Mariner Central for approximately $8.7 million of the judgment. The judgments have been appealed and the debtors have filed a related
stay relief motion to pursue the appeals. A stay of enforcement on the judgment is to expire on Sept. 22, and the claims of six additional plaintiffs are scheduled to be arbitrated in mid-2023. The debtors are also party to various other lawsuits, and have filed adversary complaints for injunctive relief to stay the actions against nondebtors.
The debtors are seeking a consensual resolution of the judgment, but are also pursuing a reorganization, sale or “other value-maximizing course of action.” With liquidity satisfied for “critical needs” for the “immediate future,” the debtors do not currently have a DIP financing commitment. However, the company is negotiating with a potential DIP lender, and says that it will continue with those negotiations and also pursue other DIP financing alternatives. The debtors also say that they intend to file a plan within 30 days.
The first day hearing has yet to be scheduled.
As of July 31, Parkview Operating had approximately $6 million in assets and $11 million in liabilities, and Mariner Health Central had approximately $7.3 million in assets and $104.7 million in liabilities. The company’s prepetition capital structure, which does not include any funded debt, consists of:
- Secured debt: None
- Unsecured debt:
- Ledesma litigation judgment: Parkview Operating is liable for approximately $6 million and Mariner Central for approximately $8.7 million of the judgment.
- Medicare overpayments: $1.8 million
- Equity: Debtor Parkview Operating Co. operates a skilled nursing facility with 121 beds for which debtor Mariner Health Central provides support services, and debtor Parkview Holding Co. is the general partner of Parkview (which is its sole asset).
The debtors were previously party as obligors or guarantors, along with other companies in the larger Mariner enterprise, to revolving loans with Capital One, with availability up to $11 million in the aggregate. Prepetition, the debtors determined that the loans would not provide enough availability for a bankruptcy filing and were subject to a continuing event of default regarding the prepetition judgment. Capital One was unwilling to provide DIP financing, and as a result, the debtors negotiated amendments releasing their obligations and terminating any liens on their assets.
Parkview obtained a PPP loan of $1.4 million, which has been forgiven. In addition, Parkview received $850,000 in other CARES Act stimulus payments, for which the debtors have satisfied the requirements for treatment as a grant.
The nature of Parkview’s operations and the reimbursement process from Medicare involves post-payments audits that may identify and require the return of overpayments. At this time, Parkview is subject to an extended repayment schedule agreement, administered by Noridian Healthcare Solutions, for Medicare overpayments related to the year ending Dec. 31, 2021, in the amount of $1.8 million, providing for monthly payments of $308,073 continuing through February 2023.
The debtors are represented by Raines Feldman and Pachulski Stang Ziehl & Jones as counsel. Lawrence Perkins of SierraConstellation Partners is the chief restructuring officer. Kurtzman Carson Consultants is the claims agent. The case has been assigned to Judge Laurie Selber Silverstein (case number 22-10877).
Background / Events Leading to the Bankruptcy Filing
The larger Mariner enterprise, including nondebtors, encompasses 20 skilled nursing facilities located in southern and northern California with approximately 2,190 licensed beds. The Mariner enterprise has 3,100 employees, and the debtors have 202 employees. The facilities generate revenue from Medicare, Medi-Cal and managed care and other third-party insurance and private payors, with approximately 85% of Parkview’s receipts coming from Medicare or Medi-Cal.
Though Parkview “has historically experienced material variability in its operating results,” it has “generally operated on a positive cash flow basis, as has Mariner Central.” Parkview generated approximately $1.4 million of net income on revenues of $17 million, and a net loss of approximately $4.8 million on revenues of $14.9 million for 2020 and 2021, respectively. Over the same time periods, Mariner Health Central generated approximately $77,278 in net income on $25.3 million of revenues and a net loss of approximately $3.37 million on $31 million of revenues.
The debtors attribute the revenue decline in 2021 to a “significant” census decline because of the Covid-19 pandemic and Parkview’s service as a Covid-19 patient care center. Nonetheless, and despite being party to more than 35 lawsuits, these “headwinds have been manageable,” according to the first day declaration of CRO Perkins, and the case was filed because the adverse litigation judgment. An appellate bond for the judgment would be at least 150% of the judgment, or more than $22 million.
In addition to the litigation which resulted in the judgment, the debtors are also subject to (i) a federal
qui tam action filed in the U.S. District Court for the Northern District of California asserting alleged overbilling of therapy services to residents under the False Claims Act and under the California False Claims Action for Medicare and Medi-Cal billings and (ii) a California state court action against the debtors and other nondebtors alleging violations of state law relating to resident care. Each of these lawsuits are in the discovery stage, and Parkview is a defendant in both, while Mariner Health is a defendant only in the state court action.
The debtors have commenced adversary proceedings seeking temporary injunctive relief enjoining the continuation of the
qui tam action (seeking a stay during the pendency of the chapter 11 cases), the
state court resident care action (requesting an injunction for an initial period of 180 days or until plan confirmation or dismissal of the chapter 11 cases), and certain
other actions pending against the debtors or nondebtor affiliates. The debtors note the possibility of indemnification claims if the actions were to continue against nondebtor affiliates, saying that personal injury claims from residents frequently allege that Mariner Health is responsible for alleged negligence, and “based on the alleged control asserted by Mariner Health Central in connection with the financial operations of Non-Debtor Affiliates.” The debtors also assert that enjoining the actions would enable the company to achieve a successful reorganization.
After the judgment was entered, the debtors began to explore strategic alternatives, and appointed Craig Barbarosh as independent director and independent manager. However, the debtors’ options “have been constrained by, among other things, their balance sheet, operational issues such as the lack of a long term lease for the Parkview Facility and the ability of Operator counterparties to exit their Support Agreements with Mariner Central on limited notice, litigation overhang, and the broader economic and regulatory climate with respect to reimbursements and enforcement actions that may weigh against the industry overall.” Based on an initial valuation of the debtors of less than $1 million, the debtors “did not proceed with exploring marketing the assets further at this time, but it remains an option.”
The debtor's largest unsecured creditors are listed below:
10 Largest Unsecured Creditors |
Creditor |
Location |
Claim Type |
Amount |
Marciela Ledesma, et al. |
Orinda, Calif. |
Litigation |
$ 14,695,914 |
Integra Med Analytics LLC |
Los Angeles |
Litigation |
10,000,000 |
Tampa Avenue Property LLC |
Boston |
Rent |
3,867,737 |
People of the State of
California |
Sacremento, Calif. |
Litigation |
2,000,000 |
Noridian Healthcare
Solutions LLC |
Fargo, N.D. |
Trade |
1,504,910 |
Fundamental
Administrative Services |
Sparks, M.D. |
Support |
1,392,000 |
Bio-Pacific LLC |
Santa Monica, Calif. |
Therapy Services |
627,000 |
Sky Power Secure
Solutions, Inc. |
Harbor City, Calif. |
Security |
332,500 |
Iron Mountain
Information
Management LLC |
Boston |
Storage |
270,000 |
JJJ Health Care
Staffing Agency LLC |
Hayward, Calif. |
Nursing Registry |
229,970 |
The case representatives are as follows:
Representatives |
Role |
Name |
Firm |
Location |
Debtors'
Co-Counsel |
Hamid R. Rafatjoo |
Raines Feldman |
New York |
Carollynn H.G.
Callari |
David S. Forsh |
Debtors'
Co-Counsel |
Laura Davis
Jones |
Pachulski Stang
Ziehl & Jones |
Wilmington, Del. |
Timothy P.
Cairns |
Mary F.
Caloway |
Debtors'
Financial Advisor |
Lawrence
Perkins (CRO) |
SierraConstellation
Partners |
Los Angeles |
Debtors' Claims
Agent |
NA |
Kurtzman
Carson Consultants |
NA |
United States Trustee |
Timothy Fox |
Office of the U.S.
Trustee |
Wilmington, Del. |
Other Motions
The debtors also filed various standard first day motions, including the following: